Company Law: Analysis of Fiduciary Duties of Company Directors

This report delves into the fiduciary duties of company directors, specifically examining the roles and responsibilities of directors within the context of the Australian Corporations Act 2001. The report analyzes a case study involving Vegas Ltd, evaluating whether the executive director, Bond, breached his fiduciary duties, including those related to acting in the best interests of the company, exercising care and diligence, avoiding misuse of information and position, and disclosing specific interests. The analysis extends to the non-executive directors, assessing their adherence to their duties, particularly regarding financial information, continuous disclosure, and avoiding misuse of information. The report highlights breaches of duty, such as insolvent trading and failure to adequately monitor financial information, referencing relevant sections of the Corporations Act and legal precedents to support its conclusions. The analysis considers the implications of the directors' actions on the company's financial stability and the impact on shareholder value. The report provides a comprehensive overview of corporate governance and the importance of fulfilling fiduciary duties.

Company Law 1
Company Law

Company Law 2
Table of Contents
Answer 1:.........................................................................................................................................3
Answer 2:.........................................................................................................................................5
References:......................................................................................................................................9

Company Law 3
Answer 1:
From the given case study, it has been analysed that Corporations act of Australia, 2001 has
defined various fiduciary duties of the directors which will effectively evaluate if Bond has
breached his duties as a director or not. Bond is the only executive director in the company
named Vegas ltd who is also designated or working as the CEO (Chief Executive Officer) of the
company. Bond has taken several vital actions in order to effectively enhance the business
operations of the company (Whincop, 2017). The company on the advice of bank manager of
Cayman bank has borrowed short term loan of about $500 million on twelve month basis and at
the same time, also advised to adjust the borrowings as non-current assets in the financial
statements of the company. In addition, Bond has also drafted announcement for ASX in order to
announce company’s decision to acquire a Casino Royale across London. Bond has also asked
his personal assistant to purchase share for Vegas ltd as earlier the announcement related to
Casino Royale would be made by ASX.
The Australian Corporations act, 2001 has imposed several fiduciary duties or responsibilities
over the directors of companies who are incorporated as per the legislative system of Australia.
The Australian government has formulated several companies which are entitled under the
Australian Corporations act, 2001 and at the same time, also aligned with legislative system of
government (Queensland Government, 2017). The directors of companies operating across
Australian region needs to comply with different sections of corporations act in order to
effectively perform their duties or responsibilities.
1
1 Australia (2011) Australian Corporations & Securities Legislation 2011: Corporations Act 2001, ASIC Act 2001,
related regulations. Australia: CCH Australia Limited

Company Law 4
The persons or individual who are selected for the boards of Government are not legally bounded
to comply under the various sections of corporations act as generally not considered as
companies in the Australian legislation.
From the corporations act, 2001, different fiduciary duties has been defined for the directors of
companies across Australia which mainly includes,
 Duty to effectively act for best interests of company under good faith and for adequate
purpose.
 Duty to effectively act with utmost care as well as diligence
 Duty to avoid inappropriate use for the information (Australian Institute of Company
Directors, 2017)
 Duty to avoid inappropriate use for their position
 Duty to disclose specific interests
From the different scenario of the case study and above discussed duties for the directors of
companies, it has been analysed that Bond has certainly breached his fiduciary duties as the
director of Vegas ltd under the different sections of corporations act, 2001.
2
2 Australian Institute of Company Directors (2017) General Duties of Directors. [Online]. Available at:
http://aicd.companydirectors.com.au/resources/all-sectors/roles-duties-and-responsibilities/general-duties-of-
directors (Accessed: 12 October, 2017).
Baxt, R. (2016) Corporations Legislation. Australia: Thomson Reuters Limited.

Company Law 5
Under section 181 of Australian corporations act, it has been analysed that Bond has adequately
performed his duties of directors in effective manner. Bond has borrowed a huge short term loan
from the bank which has indicated that Bond has performed his duties in adequate manner in
order to enhance the business operations of Vegas Ltd (Hannigan, 2015). This duties performed
by Bond are in good faith as well as business profit of the company. Bond has not breached
section 181 of Australian corporations act as observed from the case study.
Under section 180 of Australian corporations act, it has been analysed that Bond has adequately
performed his duties with utmost care as well as diligence. Bond is much known about the fact
that company will surely be benefitted from their announcement of Casino Royale and will
provide investment benefits to the company (Bevan, 2014). The draft for the announcement has
also been made by Bond in order to avoid any financial losses to the company.
Under section 183 of Australian corporations act, it has been analysed that Bond has adequately
used the draft which has been made for the announcement related to Casino Royale. Bond has
also asked to his personal assistant which is also working as company secretary to purchase share
for Vegas ltd much before the announcement related to Casino Royale would be made by ASX
(Edwards et al, 2013). This has indicated that director has not breached his duties and performed
all this duties for the best interests for his company.
3
3 Bevan, C. (2014) Corporations law. Australia: Thomson Reuters (Professional) Australia Limited.
Bottomley, S., Hall, K., Spender, P. and Nosworthy, B. (2017) Contemporary Australian Corporate Law. Australia:
Cambridge University Press.
Butterworths, L. (2011) Australian Corporations Legislation. Australia: LexisNexis Editorial Staff.

Company Law 6
But from the case study, it has been analysed that Bond has breached the section 588G of
Australian corporations act as involved in the insolvent trading. It has been also analysed that
company has spent all their funds with help of an IPO (Finch and Milman, 2017). Bond has all
the information related to insolvency of company but in order to avoid that borrowed short term
loan for the company in order to cover their entire financial incompetency in coming financial
year. On overall basis, it has been found that Bond has adequately performed his fiduciary duties
as the director of the company under different sections of the Australian corporations act, 2001.
Answer 2:
From the case study, it has been analysed that Big, White and No are three important non-
executive directors of Vegas ltd. Big is chairperson of the company who has the qualification of
accounting. It is also analysed from case study that none of the executive directors has read
announcement draft made by Bond (Chief Executive Officer) related to their Casino Royale
across London at ASX. From the entire scenario which has been given in the case study, it is
analysed that all the non-executive directors has breached their duties as directors which can
easily be described with various sections related to Australian corporations act, 2001 (Fitzpatrick
et al, 2014). It is also analysed that directors are not able to detect financial irregularities in the
financial statements which can certainly impact the financial position of company in near future
and can also affect overall business operations of Vegas ltd.
4
4 Bottomley, S., Hall, K., Spender, P. and Nosworthy, B. (2017) Contemporary Australian Corporate Law. Australia:
Cambridge University Press.
Butterworths, L. (2011) Australian Corporations Legislation. Australia: LexisNexis Editorial Staff.
Edwards, M., Halligan, J., Horrigan, B. and Nicoll, G. (2013) Public sector governance in Australia. Australia: ANU
Press.
Finch, V. and Milman, D. (2017) Corporate insolvency law: perspectives and principles.UK: Cambridge University
Press.

Company Law 7
The different duties are specified for the directors of companies functioning across Australian
region under different sections of corporations act, 2001. This mainly includes,
 Financial information
 Continuous disclosure
 Avoid inappropriate use for the information
 avoid inappropriate use for their position (Australian Institute of Company Directors,
2017)
 disclose specific interests of the companies
 To act with utmost diligence as well as care
 To act for the best concerns or interests of the companies in terms of good faith as well as
for adequate purpose
From the different scenario of this case study, it has been analysed that all the non-executive
directors of Vegas ltd has breached their duties as the directors which can easily be described
with different sections of Australian corporations act, 2001.
Under section 180 of Australian corporations act, it has been analysed that all the executive
directors has breached their duties as the directors as have not performed their duties with utmost
diligence as well as care (Spencer and Hardy, 2014). The draft which has been made for the
announcement related to company Casino Royale has not been even read by the directors. This
as a result has affected the share prices of company’s shares after the announcement made by
ASX related to Casino Royale of Vegas ltd.
Fitzpatrick, J., Symes, C., Veljanovski, A. and Parker, D. (2014) Business and Corporations Law. Australia: LexisNexis
Butterworths.

Company Law 8
Under section 181 of Australian corporations act, it has been analysed that non-executive
directors has not considered good faith for the company and has also not considered the
importance of draft related to announcement of Casino Royale for the business operations of
their company (Butterworths, 2011). The main purpose of the announcement has also not been
considered by the non-executive directors of Vegas ltd which has affected the share prices of the
company in a huge manner. This has indicated that duties of the directors have been breached in
the give case study.
Under section 344 of Australian corporations act, it has been analysed that non-executive
directors has not adequately monitor the financial information of the company. From the case
study, it is also analysed that several financial irregularities has been observed in the financial
statement of Vegas ltd. They have breached their duties while signing annual report for the
company (Baxt, 2016). Big who is one of the directors in the company has knowledge related to
accounting and needs to take the responsibility for auditing of the financial reports of the
company. He can analyse the financial irregularities within the financial statements of the
company but has breached his duty under section 344 of Australian corporations act.
5
5 Hannigan, B. (2015) Company law. USA: Oxford University Press.
Queensland Government (2017) Corporations Act 2001 (Cth) (the Corporations Act). [Online]. Available at:
https://www.premiers.qld.gov.au/publications/categories/policies-and-codes/handbooks/welcome-aboard/
member-duties/corp-act-2001-c.aspx (Accessed: 12 October, 2017).
Spencer, D. and Hardy, S. (2014) Dispute Resolution in Australia: cases, commentary and materials. Australia:
Thomson Reuters.

Company Law 9
Further, it is the fiduciary duty of the directors for continuous disclosure of the important
information of the companies in the market under section 674 of Australian corporations act. If
important announcement of companies are not disclosed in the market place on continuous basis,
then it may affect share prices of the company in a huge manner (Bottomley et al, 2017). It has
been observed from the case study that none of the directors of company has read the
announcement which needs to be made by ASX related to Casino Royale. ASX wrongly made
announcement of loans for longer term which was actually borrowed for short term obligation
from the bank. This was a huge disaster from the side of directors as have not read the
announcement before being made by ASX. This has affected the share prices of Vegas ltd in a
huge manner which is resulted in total loss of about $1000 to the company.

Company Law 10
References:
Australia (2011) Australian Corporations & Securities Legislation 2011: Corporations Act 2001,
ASIC Act 2001, related regulations. Australia: CCH Australia Limited.
Australian Institute of Company Directors (2017) General Duties of Directors. [Online].
Available at: http://aicd.companydirectors.com.au/resources/all-sectors/roles-duties-and-
responsibilities/general-duties-of-directors (Accessed: 12 October, 2017).
Baxt, R. (2016) Corporations Legislation. Australia: Thomson Reuters Limited.
Bevan, C. (2014) Corporations law. Australia: Thomson Reuters (Professional) Australia
Limited.
Bottomley, S., Hall, K., Spender, P. and Nosworthy, B. (2017) Contemporary Australian
Corporate Law. Australia: Cambridge University Press.
Butterworths, L. (2011) Australian Corporations Legislation. Australia: LexisNexis Editorial
Staff.
Edwards, M., Halligan, J., Horrigan, B. and Nicoll, G. (2013) Public sector governance in
Australia. Australia: ANU Press.
Finch, V. and Milman, D. (2017) Corporate insolvency law: perspectives and principles.UK:
Cambridge University Press.
Fitzpatrick, J., Symes, C., Veljanovski, A. and Parker, D. (2014) Business and Corporations
Law. Australia: LexisNexis Butterworths.

Company Law 11
Hannigan, B. (2015) Company law. USA: Oxford University Press.
Queensland Government (2017) Corporations Act 2001 (Cth) (the Corporations Act). [Online].
Available at: https://www.premiers.qld.gov.au/publications/categories/policies-and-codes/
handbooks/welcome-aboard/member-duties/corp-act-2001-c.aspx (Accessed: 12 October, 2017).
Spencer, D. and Hardy, S. (2014) Dispute Resolution in Australia: cases, commentary and
materials. Australia: Thomson Reuters.
Whincop, M. (2017) Corporate governance in government corporations.UK: Routledge.