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Topic 6 - Duties of Directors & Officers (Wk 7-8) - Coggle Diagram
Topic 6
- Duties of Directors & Officers
(Wk 7-8)
Duty of care and diligence
s180
Reasonable person test
the court compares the care and diligence a reasonable person would have exercised in the officer's position with the actual amount of care and diligence exhibited by the officer
Penalties
Company can seek damages
ASIC can ask the court to
disqualify the person
impose a penalty of up to $200 000
order compensation to be paid to the company
Expectations of different directors
Executive directors: are involved in the day-to-day running and are expected to have a higher level of skill
Non-executive directors: often appointed for particular expertise
Defences
Business Judgement Rule s180(2)&(3)
the rule recognises that managers operate in an environment of uncertainty
Director is able to rely on information and advice provided by other as long as they have reasonable ground to believe that: (
s 189
)
employee is reliable and competent
the expert has the skills required
other director has skills required
committee has the skills required
Duty to avoid insolvent trading
s588G
A company is insolvent when it cannot pay its debts as and when they call due
s95A
The 'Safe Harbour' Provisions
s588GA
The prohibition against insolvent trading does not apply when the course of action is reasonably likely to lead to a better outcome for the company
Relevant factors to considers: whether the director is properly informing themselves of the company's financial position or advice has been obtained from a qualified entity or if there are company restructuring plans
Does not apply if the employee entitlements are not paid or if the company has not lodged tax notices/returns
Defences
s588H
A director must have had reasonable grounds to expect the company was solvent based on their own knowledge
s588H(2)
or based on reasonable reliance on information supplied by another person
s588H(3)
Has been absent from management due to illness
s588H(4)
Have taken all reasonable steps to prevent the company incurring debt
s588H(5)
Penalties
compensation to ensure creditors are paid
s588J, 588K, 588M
civil penalties imposed on directors
criminal sanctions where dishonesty is involved
disqualification of director
Duty to act in good faith (fiduciary)
s181
Duty to act in the best interests of the company (fiduciary)
s181
Duty to avoid conflicts of interest and disclose certain interests (fiduciary)
s191
Conflict of interest:
make undisclosed personal profits
competes with the company
takes up corporate opportunity/property from the company
misuses confidential company information or funds
obtain personal profits
Conflicts of duty
holds directorship in two companies that transact with each other
is a nominee director
accepts a bribe from another company
Related party transactions
Chapter 2E
Duty to act for proper purpose (fiduciary)
s181
common examples of issues shares for an improper purpose
Duty to retain discretion (fiduciary)
Duty to not misuse their position
s182
or information
s 183
to gain advantage for themselves
to gain advantage for someone else
to the company detriment
Actions for breaches
Breach of common law duties
Action by members
Action by company
Breach of contract
Action by members
Action by company
Breach of statutory duties
Action by members
Action by company
Action by regulator ASIC
Penalties
A company can seek:
Compensation
Damages
Rescission of contract
Injunctions
ASIC can seek:
fine (criminal or civil)
disqualification
imprisonment