Directors Duties and Responsibilities

Question: Discuss about the A guide to Directors Duties and Responsibilities. Answer: Relevant law A company director is the sole/heart of the company who runs and manages the company affairs. Section 9 of the Corporation Act 2001 defines a director as the person who performs the functions of the directors and comprise of shadow, de facto, alternate directors, etc. There are common and statutory duties which every director must comply with. (WD Duncan, 2012) Common law duties 1.Every director must perform with utmost good faith, with bonfide intention and in the companys interest (Whitehouse v Carlton Hotel Pty Ltd (1987). There is breach, if the companys interest is not taken into account but the breach is considered what a reasonable prudent man thinks in the like circumstances Farrow Finance Company Ltd (in liq) v Farrow Properties Pty Ltd (in liq) (1997). 2.Every director must act with proper purpose and should not misuse their powers to gain benefit for themselves (Pine Vale Investments Ltd v East Ltd East Ltd Anor (1983). Every director must act with diligence and care. This duty cannot be delegated and even of delegated it will not absolve the responsibility of the director (Statewide Tobacco Services Ltd v Morley (1990). 1.The directors must be fully informed regarding the affairs of the company before making any decisions at the board (Daniels v Anderson (1995). 2.Every director must avoid any conflicting situation and if the conflicts occur then the companys interest should prevail (SEA Food International Pty Ltd v Lam (1998). 3.Directors own a fiduciary duty which must be complying with in every scenario No confidential information must be disclosed by the directors. No director must abuse the corporate opportunities. Statutory duties 1.Section 180 (1) of the Act establishes that the duty of diligence and care should be performed by the directors and other officers like a normal prudent man do in the similar circumstances (ASIC v Healy (2011). 2.As per section 181, every director or officers must act in good faith, proper purpose and in companys interest. This duty is breached even when the directors are acting honestly. As per section 182 and section 183 of the Act, the position and information, respectively, of the company must not be misused which is disadvantageous to company and in the benefit of the directors (ASIC v Vizard[2005]) regardless of the fact whether benefit or disadvantage actually occurs or not. As per section 191-195 of the Act, the director must disclose all the material personal interest which he has in the affairs of the company. Application As per facts, Property Developments Ltd (company) with Julian, Sol and Daniel as directors. The company intent to acquire a land. The company also desires to engage an architectural firm to design plans for their buildings and sought various firms to tender for the role. Breach of duty by Julian As per the facts, Julian, at the board meeting recommends to buy the land from Gerald (his uncle) @ $850,000 (current market value). He did not disclose his relationship with Gerald and the fact that his uncle intends to sell the land to pay the bank loan. Now, Julian is in breach of his statutory duty under section 182-183 as he misused his position and information and it makes no difference whether any disadvantage to the company or any benefit to him actually incurs or not. Also, he did not acted with all due care and diligence, with good faith, proper purpose or in the company interest and thus has violated section 180 (1) 181. Also, he did not disclose any material personal interest and is in violation of section 191-195 of the Act. Also, Raphael is the brother of Julian and is the owner/director of an architectural practice company. Julian is in charge of the tender process. Julian by using his position and information has informed Raphael as what each architectural firm is going to charge. This has provided an advantage to Raphael to offer the lowest price. Thus, Julian has dishonestly and recklessly violated section 182 and section 183 of the Act. Also, he did not disclose his relation with Raphael to other directors and thus has violated section 181 of the Act. Julian has also violated common law duties of good faith, transferring of confidential information, misuse of position and information. Breach of duty by Sol and Daniel Both the directors agree to buy the land from Gerald and authorize Julian to proceed with the transaction. They make no independent financial enquiry and how the company will raise the finances. They are not pro at understating finance and leave it to the companys accountants to sort out. Thus, they acted without any care and diligence by not enquiring into the financial position of the transaction and also violated their duty of good faith which they have against the other personnels of the company and thus have breach section 180(1)- 182 of the Act. The common law duties of good faith, transferring of confidential information, misuse of position and information are also violated. Since Julian is in breach of 180 (1) 183 section 191-195 of the Act thus, civil penalties must be imposed upon him. Sol and Daniel has also violated section 180(1)- 182 of the Act. Thus, the directors can be compensated or impose with civil penalty a fine of $200,000 or can be disqualified under section 206C of the Act. Also, Julian has provided advantage to Raphael by acting recklessly and dishonestly and thus has violated section 180 (1)-183 of the Act. So he committed a criminal offense under section 184 and can be imposed with a fine of $360,000 or 5 years Jail or both or can be disqualified (section 206 B). All the directors can take the defense under section 180 (2) to relieve from the breach of section 180 (1), if the director/officer can prove that the decisions taken by them is in good faith, proper purpose, there is no material personal interest or genuinely consider that the decisions in the companys best interest. Conclusion Thus, Julian has acted without any care, diligence and good faith. He also acted recklessly and dishonestly. Thus, he is liable both under civil and criminal law. Also, Sol and Daniel ahs also violated section 180 (1)- 182 and thus civil liabilities can be imposed upon them. References Books/Articles/Journals? Etraining (2008) A guide to directors duties and responsibilities for non-listed public companies and proprietary companies in Australia. WD Duncan (2012) Joint Ventures Law in Australia: 3rd Edition. Federation Press. Case laws ASIC v Healy (2011) 83 ACSR 484. ASIC v Vizard[2005] FCA 1037 Daniels v Anderson (1995) 37 NSWLR 438. Farrow Finance Company Ltd (in liq) v Farrow Properties Pty Ltd (in liq) (1997) 26 ACSR 544. Pine Vale Investments Ltd v East Ltd East Ltd Anor (1983) 8 ACLR 199. SEA Food International Pty Ltd v Lam (1998) 16 ACLC 552. Statewide Tobacco Services Ltd v Morley (1990) 2 ACSR 405 Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285.