Legal Issues for Managers: Corporations Act and Director Liability

This report examines several legal issues relevant to managers, specifically focusing on the Corporations Act 2001 and the duties of company directors. The analysis involves a case study where the actions of directors Vienna, Paris, and Sydney are assessed against the provisions of the Act, including sections related to disclosure of personal interests (Section 191), duty of care and diligence (Section 180(1)), and insolvent trading (Section 588G). The report concludes that Vienna breached her duties by failing to disclose a personal interest, Paris breached her duties through negligent behavior and insolvent trading, and Sydney did not breach any provisions. Additionally, the report addresses questions related to company registration, voluntary deregistration, and the process of changing a proprietary company to a public company under the Act. Finally, it provides details on a criminal case involving fraudulent activities, highlighting the standard and burden of proof required.

Running head: LEGAL ISSUES FOR MANAGERS
LEGAL ISSUES FOR MANAGERS
Name of the Student
Name of the University
Author Note

1LEGAL ISSUES FOR MANAGERS
ILAC
Issue
If Paris, Vienna and Sydney have breached any civil penalty provision of the
Corporations Act, 2001 and/or any common law duties.
Law
Section 191 of the Corporations Act, 2001 provides for disclosure of personal interest by
the directors. This section mandates that when a director of a company has a personal interest in
a contract or any other transaction that the company may enter into the same must be disclosed
(Bevan, 2014). Section 192 of the act further provides that the director of a proprietary company
can participate in discussions, vote on, and keep any benefits that may arise from such a
transaction if they have disclosed such a personal interest. ASIC v Adler and 4 Ors [2002]
NSWSC 171 reiterated this position (Bottomley, 2016).
As per Section 180 (1) of the Corporations Act, 2001 the directors of a corporation must
observe a duty of care and diligence when acting on behalf of the company. Thus when an
officer or director is guilty of contributory negligence which lead to a detriment for the company,
he/she is in breach of their duty under this section. This has also been reiterated in Daniels v
Anderson [1995] 37 NSWLR 438 (Bronitt, 2013).
Section 588G of the Corporations Act, 2001 provides an obligation on the directors to
ensure that the company does not engage in insolvent trading (De Bakker et al., 2013). This
means that there is a bar from incurring further debt when a company is unable to meet its
present debts.

2LEGAL ISSUES FOR MANAGERS
Application
Vienna suggested that Milton Motels employ the company “Dodgy Brothers” for their
motel’s laundry services. Vienna however did not disclose that her husband and brother-in-law
are directors of Dodgy Brothers. Thus this was a personal interest as this would get additional
business for her husband’s company and she stood to gain from such a transaction. However this
was not disclosed to any of the other directors. Thus following the provisions of Section 191 and
192 of the Corporations Act, 2001 this was a breach of her statutory duty as a director of the
company. ASIC v Adler and 4 Ors [2002] NSWSC 171 also mandates the same (Schultz, Tian
& Twite, 2013).
Paris was travelling for 6 months and was not available to take calls and participate in the
company’s decision making process. During this time the company’s accounts became over
drawn and the company was unable to meet its current debts. Thus Paris’s negligent behavior
had detrimental effects on the company’s financial stand. Thus following the judgment in
Daniels v Anderson [1995] 37 NSWLR 438 it may be inferred that Paris was in breach of her
duties under Section 180 (1) of the Corporations Act, 2001 (Stephens, 2017). Furthermore, she
subsequently spent $500,000 on furnishing of the motels when the company was unable to pay
its debts. This was thus an insolvent trade and such a trade would be a contravention of Section
588G of the act.
Sydney was on a business trip when she was pitched about investing in “Bright Ideas”,
however she used her own money to purchase shares in the company. Thus here she was not
acting in the capacity of an agent of the company but in her own personal capacity. Thus she was
not in breach of any provision of the Companies Act, 2001.

3LEGAL ISSUES FOR MANAGERS
Conclusion
Vienna and Paris were in breach of their statutory duties as directors of the company.
Sydney on the other hand is not in breach of any provision of the Corporations Act, 2001.
Question 1
Hilton Hotels Pty Ltd: CAN 008 419 485.
Registered office: Sydney, NSW.
Question 2
Information cannot be found at the moment. This is because the site is undergoing maintenance
in the “ABN search” section.
Question 3
Voluntary deregistration is when a corporation, through its own motion, requests
deregistration by applying for the same through Form 6010. The methods for reinstatement of a
deregistered company are:
 Application to ASIC for reinstatement.
 Application to court to order ASIC to reinstate the company.
Question 4
Proprietary company may be changed to public company through the provisions of
Section 162 of the Corporations Act, 2001. The steps to be taken in such a case are:

4LEGAL ISSUES FOR MANAGERS
 The board needs to pass a special resolution.
 Notify the special resolution through Form 205 and apply for change of company type
though Form 206.
Question 6
Mr. Peter David Roach was sentenced to 3 years and 4 months imprisonment. The
standard of proof required to be established by the Department of Public Prosecutions is that Mr.
Peter David Roach was involved in fraudulent activities beyond reasonable doubt. The burden of
proof is on the prosecution to establish fraud.

5LEGAL ISSUES FOR MANAGERS
Reference List
Bevan, C. J. (2014). Corporations law. Thomson Reuters (Professional) Australia Limited.
Bottomley, S. (2016). The constitutional corporation: Rethinking corporate governance.
Routledge.
Bronitt, S. H. (2013). Policing Corruption and Corporations in Australia: Towards a New
National Agenda.
De Bakker, F. G., Den Hond, F., King, B., & Weber, K. (2013). Social movements, civil society
and corporations: Taking stock and looking ahead. Organization studies, 34(5-6), 573-
593.
Schultz, E., Tian, G. Y., & Twite, G. (2013). Corporate governance and the CEO pay–
performance link: Australian evidence. International Review of Finance, 13(4), 447-472.
Stephens, B., 2017. The amorality of profit: transnational corporations and human rights.
In Human rights and corporations (pp. 21-66). Routledge.