Corporate Law Case Study: Analyzing Safe Harbour & Director's Duties

This case study provides a comprehensive analysis of safe harbour provisions under Section 588GA of the Corporations Act 2001, focusing on the duties of directors in preventing insolvent trading. Part A addresses key questions regarding a director's fiduciary duty, the concept of safe harbour, protections afforded to directors, restrictions on safe harbour application, and the impact of changes in Division 3 of the Corporations Act. It also references the Australian Securities and Investment Commission v Cassimatis case, highlighting the obligations of directors. Part B presents a case study involving Mr. Daly, analyzing his breach of director's duties through misuse of company funds. It discusses the potential liability of other directors and the implications of the company's insolvent trading. The analysis emphasizes the importance of directors taking reasonable steps to prevent insolvent trading and acting in the best interests of the company. Desklib offers this and many other solved assignments for students.

Running head: CORORATE LAW 1
Corporate Law

CORORATE LAW 2
Table of Contents
Introduction................................................................................................................................3
Part A.........................................................................................................................................3
Answer to Question 1.............................................................................................................3
Answer to Question 2.............................................................................................................3
Answer to Question 3.............................................................................................................4
Answer to Question 4.............................................................................................................4
Answer to Question 5.............................................................................................................4
Conclusion..................................................................................................................................5
Part B..........................................................................................................................................5
Answer to Question 1.............................................................................................................5
Answer to Question 2.............................................................................................................5
Answer to Question 3.............................................................................................................6
Answer to Question 4.............................................................................................................6
Answer to Question 5.............................................................................................................6
Conclusion..................................................................................................................................7
References..................................................................................................................................8

CORORATE LAW 3
Introduction
The concept of safe harbour states that the provision of a statute implies exemption
from being held liable for offences as prescribed by the statute concerned. It further implies
that there are certain types of conduct which are not be considered as blatant contravention of
the law accordingly. Safe harbour has been included in legislations around the world with
regard to the facts and circumstances of the situation concerned. As a result, it has played a
huge role with regard to the approach to be undertaken by the court if competent jurisdiction
as far as the merits of the case is concerned accordingly. The main aim of the report is to
present an overview of the aspect pertaining to safe harbour with reference to Section 588
GA of the Corporations Act of 2001. In this regard, the aspect pertaining to the prevention of
insolvent trading on part of the director concerned would be analysed accordingly as far as
the fiduciary duty is concerned. Additionally, the case study pertaining to Mr. Daly would
also be taken into consideration accordingly as far as its analysis in a proper and appropriate
manner is concerned.
Part A
Answer to Question 1
The director of a company is under a duty to identify and determine any aspect
pertaining to insolvent trading and undertake the necessary steps accordingly in accordance
with Section 588 GA of the Corporations Act of 2001. It is a fiduciary duty on part of the
director concerned as it implies that aspect pertaining to the beneficial interests as far as the
respective organization is concerned accordingly (Marsh & Roberts, 2017). The aspect
pertaining to fiduciary duty implies the action undertaken by the director in good faith as far
as Sub-section1 of Section 181 of the Corporations Act of 2001 is concerned. Such an aspect
is also implied by the common law jurisdiction of England and Wales. The insolvent trading
of a company would imply the breach of duty on part of the director of the company as far as
relevant provisions enshrined and envisaged in the Corporations Act of 2001 is concerned
accordingly. As a result, the penalties would be imposed upon the director accordingly for
the failure to prevent a company form insolvent trading accordingly as far as breach of duty
on part of the director is concerned. As a result, the liabilities of offences pertaining to breach
of duty would be applicable accordingly.
Answer to Question 2
The concept of safe harbour with reference to Section 588 GA of the Corporations
Act of 2001 implies that there is an exemption of liabilities for the director with regard to
insolvent trading of a company accordingly. As a result, it implies the defence on part of
director taking account of the beneficial interests of the company accordingly. As per Sub-
Section 3 of Section 588 GA of the Corporations Act of 2001 the burden of proof relating to
the defence lies on the director as far as the exemption from liability is concerned accordingly
(Dunn, 2017). However, the exemptions would not be applicable under Sub-Section 4 and
Sub-Section 5 of Section 588 GA of the Corporations Act of 2001 as far as the aspect

CORORATE LAW 4
pertaining to default in repayment of debt is concerned accordingly with regard to the wages
of employees to be disbursed in a timely manner. As a result, it is imperative that the key
thing pertaining to the defence of safe harbour is applicable only when the director acts in the
best interests of the company as far as insolvent trading is concerned. It would help in the
application of the aspect of the safe harbour in a proper and appropriate manner.
Answer to Question 3
The protection under Section 588 GA of the Corporations Act of 2001 is primarily
granted to the directors accordingly taking account of the aspect related to insolvent trading.
Such a protection is granted on the grounds when it is inferred form the facts and
circumstances of the scenario that the required measures and initiatives have been undertaken
by the director to prevent the company form indulging into trading in an insolvent manner
accordingly (Anderson, 2017). The aspect pertaining to business judgment in accordance
with Section 180 of the Corporations Act of 2001 is different from the aspect of insolvent
trading since it implies good faith accordingly.
Answer to Question 4
Sub-Section 4 and Sub-Section 5 of Section 588 GA of the Corporations Act of 2001
imply that there are certain restrictions with regard to the application of defence pertaining to
safe harbour as far as breach of duty on part of director on grounds of insolvent trading is
concerned accordingly. If there is no repayment of a debt which has been incurred over the
company, the director would not be exempted with regard to breach of fiduciary duty as far
as insolvent trading is concerned.
Answer to Question 5
The changes in the Division 3 of the Corporations Act of 2001 implies that it would
hugely influence the aspect pertaining to insolvent trading thereby leading to penalties with
reference to breach of duties of the director accordingly. If reasonable steps are taken by the
director in terms of seeking help on part of the director as a result, of voluntary insolvency,
then the exemptions implied by Sub-section 3 of Section 588 GA of the Corporations Act of
2001 would be applicable accordingly. It is to be taken into account the director is genuinely
seeking such help with reference to the prevention of the company with regard to trading in
an insolvent manner accordingly (Kashyap, Jaswani, Bhandari & Dixit, 2019). As a result,
there would be a crackdown in voluntary insolvencies after the amendments of the Division 3
of the Corporations Act of 2001 accordingly to a great extent taking account of the facts and
circumstances of the scenario concerned with regard to exemption accordingly. The aspect
relating to the mitigation would also be taken into consideration by the Federal Court of
Australia under Sub-section 6 of Section 588 GA of the Corporations Act of 2001 as far as
lifting of the restrictions and limitations pertaining to safe harbour is concerned accordingly
taking account tof the merits of the case. In this regard, the key thing would be the
application of the principles of natural justice in a proper and appropriate manner. It is
essential to introduce changes with regard to the Division 3 of the Corporations Act of 2001
taking account of the judgment made by the Federal Court of Australia in the case of
Australian Securities and Investment Commission v Cassimatis. In this case, the directors of
Storm Financial Limited Mr. And Mrs. Cassimatis were held for breach of duties as directors.

CORORATE LAW 5
As a result, such a decision implies that the directors of a company are under an obligation to
act as far as their duties stipulated under the relevant provisions of the Corporations Act of
2001 are concerned. In order to be exempt from the breaches of duties as a director with
regard to voluntary insolvency on part of the company, appropriate steps and measures are to
be taken by the director accordingly as far as the concept of safe harbour is concerned. As a
result, it is imperative that it is necessary to introduce the changes pertaining to Division 3 of
the Corporations Act of 2001 accordingly.
Conclusion
As observed form the aforesaid responses to the questions in order to address in an
appropriate manner, the aspect pertaining to safe harbour is justified and appropriate
accordingly as far as Section 588 GA of the Corporations Act of 2001 is concerned
accordingly. In this regard, the aspect pertaining to the fiduciary duty of the director to
prevent the company from insolvent trading is justified and appropriate accordingly. The
duties of the director pertaining to good faith have also been taken into consideration as far as
the beneficial interests of the company are concerned with respect to Sub-section1 of Section
181 of the Corporations Act of 2001. The case of Australian Securities and Investment
Commission v Cassimatis has also been analysed accordingly with regard to the decision of
the Federal Court of Australia as far as the breach of directors’ duties is concerned under the
Corporations Act of 2001.
Part B
Answer to Question 1
It is imperative that Mr. Daly has acted in breach of directors duties to a huge extent
taking account of the facts of the case accordingly. The finances of the company were utilized
by him for personal gains accordingly instead of being invested in a proper and appropriate
manner as far as the beneficial aspects of the company is concerned accordingly. The money
has mainly been spent on his trips accordingly thereby implying blatant breach of directors’
duties as far as the contravention of the relevant provisions enshrined and envisaged in the
Corporations Act of 2001 is concerned. It is imperative that the acts pertaining to the breach
of duties as director with reference to Mr. Daly imply deception to a huge extent as far as
misleading of people is concerned accordingly thereby resulting in red-herring as far as the
misappropriation of funds is concerned (Harris, 2016). The investors are apprehending that
they would lose huge amounts of their money as a result of the conduct relating to breach of
duty on part of Mr. Daly as a director accordingly. The penalties for breach of duty as a
director as stipulated by the Corporations Act of 2001 are applicable on Mr. Daly.
Answer to Question 2
There has to be proper and conclusive valid evidence in order to imply that the other
directors are in breach of their duties as a director. If it is established that there has been a
breach of duties on part of the directors of the company, the aspects pertaining to penalties
would apply accordingly taking account of the relevant provisions of the Corporations Act of

CORORATE LAW 6
2001 accordingly. However, it should be taken into account whether the directors were
induced and influenced by Mr. Daly with regard to the aspects pertaining to malpractices
accordingly. The facts and circumstances of the case are to be examined and analyzed in a
proper and appropriate manner in order to address the issues pertaining to the breach of duties
on part of the other directors of the company accordingly (Sewell, 2018). It would help in the
drawing of the inferences pertaining to the breach of duties on part of the other directors in an
effective and efficient manner as far as the imposition of liabilities is concerned accordingly.
The evidence with regard to the breach of duties on part of the other directors has to be
credible in nature accordingly.
Answer to Question 3
The facts of the case imply that the company was into insolvent trading taking into
consideration its situation accordingly. If it is implied that the directors did not undertake any
reasonable steps with regard to the prevention of the aspect pertaining to trading in an
insolvent manner, they should be held liable for breach of fiduciary duty as a director along
with Mr. Daly accordingly. Sub-section 3 of Section 588 GA of the Corporations Act of 2001
implies that the director has to prove that the reasonable steps had been taken accordingly
with regard to the prevention of insolvent trading with respect to the company accordingly.
As a result, the other directors have to furnish the details pertaining to the actions being
undertaken by them with regard to the prevention of the company form trading in an
insolvent manner accordingly (ABC, 2019). It would help in the elucidation upon the aspect
pertaining to safe harbour in a proper and appropriate manner accordingly. The aspect
pertaining to mitigation under Sub-section 6 of Section 588 GA of the Corporations Act of
2001 may also be taken into consideration with regard to the non-repayment of debt
accordingly as per the approach of the Federal Court of Australia.
Answer to Question 4
If it is observed that the reasonable steps were undertaken in order to prevent
insolvency of the company as a far as trading is concerned, the defense pertaining to safe
harbor would be available accordingly for the other directors. However, it would not be
available for Mr. Daly as it is prima facie established that he acted in breach of his duties as a
director as far as the misuse of the financial assets of the company is concerned accordingly.
As a result, it is imperative that the restrictions under Sub-Section 4 and Sub-Section 5 of
Section 588 GA of the Corporations Act of 2001 would be applicable accordingly as far as
the actions of Mr. Daly are concerned. The investors have been tricked and deceived by Mr.
Daly to a massive extent as far as misleading acts are concerned. The Federal Court
Australia must be presented with the evidence that the other directors acted in a reasonable
manner as far as the initiation of action with regard to the curtailment of insolvency for the
company is concerned accordingly otherwise liabilities pertaining to breach of duty as
directors must be imposed upon accordingly as far as the Corporations Act of 2001 is
concerned.
Answer to Question 5
The availability of the defence related to safe harbour is subject to the aspect that the
directors undertook reasonable measures in a precautionary manner accordingly as far as the

CORORATE LAW 7
prevention of insolvency is concerned accordingly. Sub-section 3 of Section 588 GA of the
Corporations Act of 2001 would be taken into account in this regard accordingly. It would
help in the application of the aspect pertaining to safe harbour as a means of defence in an
effective and efficient manner subject to the restrictions imposed by Sub-Section 4 and Sub-
Section 5 of Section 588 GA of the Corporations Act of 2001 accordingly as far as the facts
and circumstances of the case are concerned pertaining to the directors other than Mr. Daly
(Hill & Conaglen, 2017). However, the Federal Court of Australia may provide a
comprehensive solution to the other directors taking account of the facts and circumstances in
a proper and appropriate manner as far as the principles of natural justice in terms of equity
and fairness are concerned accordingly. As a result, the rubric of Section 588 GA of the
Corporations Act of 2001 has to be analysed in a proper and appropriate manner so as to
imply the defence pertaining to safe harbour accordingly.
Conclusion
The defence of safe harbour would also not be available to him accordingly as far as
Section 588 GA of the Corporations Act of 2001 is concerned accordingly. With reference to
the aspect pertaining to breach of duty on part of the other directors, a conclusive proof has to
be established accordingly as a far as credible evidence is concerned. As a result, the Federal
Court of Australia would have an extremely vital role to play in this regard.

CORORATE LAW 8
References
ABC, (2019). Update: The Talented Mr. Daly. Background Briefing. Retrieved form
Anderson, H. (2017). Shelter from the storm: Phoenix activity and the safe harbour. Melb. UL
Rev., 41, 999.
Dunn, J. (2017). Safe harbour. Company Director, 33(6), 28.
Harris, J. (2016). Reforming insolvent trading to encourage restructuring: safe harbour or
sleepy hollows?. Journal of Banking and Finance: Law and Practice.
Hill, J. G., & Conaglen, M. (2017). Directors’ Duties and Legal Safe Harbours: A
Comparative Analysis. Research Handbook on Fiduciary Law, DG Smith, AS Gold,
eds, Edward Elgar, UK.
Kashyap, A.K., Jaswani, U., Bhandari, A. & Dixit, Y.S., (2019). An Introduction to
Corporate Insolvency Law and Reforms in Australia. In Corporate Insolvency Law
and Bankruptcy Reforms in the Global Economy (pp. 107-131). IGI Global.
Marsh, S., & Roberts, S. (2017). Risk management: Insolvency safe harbour
for'honest'directors. Governance Directions, 69(5), 275.
Sewell, B. (2018). Corporate law: Navigating the safe harbour for small-to medium-sized
enterprises. LSJ: Law Society of NSW Journal, (43), 82.