Director Duties
Who owes the duties
Who may enforce the duties
Breaching a duty
Duty of care, skill and diligence s180
Senior executive officer: Most statutory duties also apply to officers
To whom are the duties owed: Duties are** owed to the company
Statutory duties usually enforced by ASIC
General law duties are enforced by the company
Statutory action often preferable and may result in disqualification of directors– ASIC is the plaintiff
Breach of general law rules may entitle company to compensation – Company is the plaintiff
Standard of care Daniels v AWA Ltd
keep informed about and monitor, the company’s activities and regularly attend board meetings
monitor the company’s financial position
obtain a basic understanding of their company’s business
Higher requirements for some directors
ASIC v Vines
Directors with special skills are held to the standard of a person professing to have those skills
Executive directors’ greater involvement in the business of the company may lead to an expectation of greater knowledge of some matters
Delegation
Directors may delegate any of their power to any person, unless constitution restricts delegation s198D
If delegate is negligent, director will be liable unless requirements of s190 satisfied
Reliance
good faith and independent assessment s189
An argument by non-executive directors that they could rely on company management and external auditors to ensure financial statements were compliant with accounting standards and therefore not breach their duty of care and diligence
ASIC v Healey
Reliance must be reasonable
Court found directors could not substitute reliance upon others “for their own attention & examination of an important matter that falls specifically within the Board’s responsibilities…” and as such was not reasonable in circumstances to delegate such duty.
Business judgment rule s180(2) Director is taken to meet the statutory and general law duties of care in connection with a business judgment if:
no material personal interest in
subject matter of judgment
inform themselves
good faith and for a proper purpose
rationally believe the judgment is in
the best interests of the company
Best interest and proper purpose duties s181
Duty to act for a proper purpose
The general law duty is essentially the same as statutory duty in s181
Duty to act in good faith
in the best interests of the company
Must do what they believe is best for the company, not themselves or a particular stakeholder group
Interests of the company
(interest of stakeholders of the company)
company as a commercial entity separate
from its members
creditors (when company is insolvent)
Kinsela v Russell Kinsela Pty Ltd
members (when company is solvent)
Perke v Daily News Ltd
other companies within a corporate group
Equiticorp Finance Ltd v Bank of New Zealand
employees, customers, suppliers and the community
Conflict of interest duties
Modifying the rule in the company’s constitution
Statutory regulation of situations of conflict
General law rule against
conflict of interest or duty
(CASEs?)
makes personal profit as a result of his or her position as a director
misuses confidential company information
contracts with the company
works for a competitor
s195: imposes a restriction upon directors of public companies being present and voting at meeting that consider a matter in which they are interested unless the other directors approve.
Improper use of position or information
Disclosure of interest by directors s191
(can be used as a defense for director)
Prohibition of financial benefits given by public companies to their related parties, including directors
give details of the nature and extent of the interest and the relation of the interest to the affairs of the company
be given at a directors' meeting as soon as practicable after the director becomes aware of their interest in the matter
Only material personal interests must be disclosed
the promotion, formation, membership, control, business, trading, transactions and dealings, property, liabilities, profits and other income, receipts, losses, outgoing and expenditure of the company
the internal management and proceeding of the company
the ownership of shares or other securities issued by the company
the power of person to control voting rights or the right to sell shares
matters concerning the identification of persons who are or have been financially interested in the success or failure of the company or person who are or have been able to control or materially influence the policy of the company
s182: a director, secretary, other officer or employee of a company must not improperly use their position to:
- gain an advantage for themselves or someone else
- cause detriment to the company
s183: a person who obtains information because they are, or have been, a director or other officer or employee of a company must not improperly use the information to:
- gain an advantage for themselves or someone else
- cause detriment to the company
Financial benefit s229
issuing securities or options
buying, selling or leasing an asset
taking up or leasing obligations
giving or providing finance or property
providing or receiving services
Related parties s228
entities controlled by other related parties
entities that have reasonable ground to believe that they will become a related party in future
certain relatives of the public company's directors and their spouse
entities that have been related parties within the previous 6 months
directors of the public company and their spouse
entities acting in concert with related parties on the understanding that the related party will receive a fiancial benefit indirectly through the entity
any entity that control the public company
Two steps test (Case?)
But for test (Case?)