Th e D u ties Lo yalty an d go o d faith C are an d d iligen ce
Duty to retain discretions
Duty not to misuse information or position: s182, 183
Related Party Tansactions Ch2E
Requirement to disclose certain interests: s191196
Duty to avoid conflicts of interest
Duty to act in good faith in the best interests of the company and for a proper purpose: s181
Duty to act in good faith in the interest of the company
Loyalty and good faith
Duty to act in good faith in the best interests of the company and for a proper purpose: s181
Duty to use powers for a proper purpose
The Duties
Duty to prevent insolvent trading: s588G
Duty to act with reasonable care and diligence: s180
Duty to act with reasonable care and diligence
Care and diligence
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Core Obligations
1. Care and diligence 2. Loyalty and good faith -
General Law Duties -
Case law gives the company as a separate legal entity right to take action against directors.
Who owes the general law duties? -
Directors and .. Senior executive officers who are in a fiduciary relationship with the company (based on the power they exercise and the vulnerability of the company to their wrongful actions) o
Fiduciary relationship = Fiduciary is a person who is expected to act in the interests of another person. Fiduciaries cannot use their knowledge or position to benefit themselves rather than the person whose behalf the fiduciary is required to act.
Statutory duties -
Uses cases to explain what the statue requires Gives company and ASIC right to take action against evil or lazy directors
Who owes statutory duties? -
-
Directors as defined in s9 (includes de facto and shadow directors) Most statutory duties also apply to officers as defined in s9 with the exception of o s191 (disclose personal interests) and o s588G (duty to prevent insolvent trading) they only apply to directors 2 statutory duties apply to employees, i.e. s182,183 (duties not to make improper use of position and information)
To whom are the duties owed? -
Generally the company Under exceptional circumstances, the duties may be owed to an individual member o Brunninghausen v Glavanics Director Brunninghausen (5/6 shares) led director Glavanic (1/6 shares) to sell his shares as director Ended up B sold the company to a third party at a profit but did not Brunninghausen owed a duty to Glavanic as the director was in a position of particular advantage in relation to the member and special circumstances (confidential negotiations to se allowed the director to exploit the member.
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Unusual fact: Just two directors & B deliberately ripped of Glavanice *SPECIFIC
Who enforces the duties? -
General law duties: Enforced by the company (or liquidators if company is being wound up) Statutory duties: Usually ASIC but company can also seek remedies for statutory breaches Content of duties may be the same where they overlap Why have both general law and statue? o Statue allows ASIC to be involved in enforcement o Different remedies available under statue and general law
Consequences of Breaching a Duty [In General] -
Depends on whether it is a general law duty or a statutory duty Statutory duties o Civil penalty provisions by ASIC Disqualification from managing companies for a time period Penalty of up to $200,000 Compensation to company for any loss or damage o Criminal penalty (if v serious) Note: not possible under s180 Imprisonment Fine up to $360,000 (2000 penalty unit) Prison up to 5 years
-
General law duties o Enforced by company o Remedies eg compensation or damages paid to company by person who has breached the duty
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s180: Duty of Care, Skill and Negligence
(Statutory as well as general law duty) Sources of the duty: o General law negligence cases o s180(1) o Contract of employment (for executive officers and other executive officers) - A director or other officer breaches this duty if he or she is negligent - Originally, under the common law, the courts took used a largely subjective test by: o Taking into account the background, skills and experience of the director concerned o was judged against the standard of someone with the same (poor) knowledge and skill - Replaced by the modern standard of care -
s180(1): Care and diligence -
-
i. Care -
-
A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: (a) were a director or officer of a corporation in the circumstances; AND (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer. What should you have done at that time in your company in ? The duty can be broken down into four categories: o Care o Skill o Diligence, AND o Delegation and Reliance
A director must exercise reasonable care Directors required to exercise the degree of care a reasonable person would exercise in the and with the same responsibilities as the director. 1. Reasonable person 2. 3. 4. Minimum requirements under the modern standard of care : Daniels v AWA Ltd o Every director must:
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Duty not to misuse information or position: s182, 183
Related Party Tansactions Ch2E
Requirement to disclose certain interests: s191196
Duty to avoid conflicts of interest
Duty to act in good faith in the best interests of the company and for a proper purpose: s181
Duty to act in good faith in the interest of the company
Loyalty and good faith
Duty to act in good faith in the best interests of the company and for a proper purpose: s181
Duty to use powers for a proper purpose
The Duties
Duty to prevent insolvent trading: s588G
Duty to act with reasonable care and diligence: s180
Duty to act with reasonable care and diligence
Care and diligence
49
Core Obligations
1. Care and diligence 2. Loyalty and good faith -
General Law Duties -
Case law gives the company as a separate legal entity right to take action against directors.
Who owes the general law duties? -
Directors and .. Senior executive officers who are in a fiduciary relationship with the company (based on the power they exercise and the vulnerability of the company to their wrongful actions) o
Fiduciary relationship = Fiduciary is a person who is expected to act in the interests of another person. Fiduciaries cannot use their knowledge or position to benefit themselves rather than the person whose behalf the fiduciary is required to act.
Statutory duties -
Uses cases to explain what the statue requires Gives company and ASIC right to take action against evil or lazy directors
Who owes statutory duties? -
-
Directors as defined in s9 (includes de facto and shadow directors) Most statutory duties also apply to officers as defined in s9 with the exception of o s191 (disclose personal interests) and o s588G (duty to prevent insolvent trading) they only apply to directors 2 statutory duties apply to employees, i.e. s182,183 (duties not to make improper use of position and information)
To whom are the duties owed? -
Generally the company Under exceptional circumstances, the duties may be owed to an individual member o Brunninghausen v Glavanics Director Brunninghausen (5/6 shares) led director Glavanic (1/6 shares) to sell his shares as director Ended up B sold the company to a third party at a profit but did not Brunninghausen owed a duty to Glavanic as the director was in a position of particular advantage in relation to the member and special circumstances (confidential negotiations to se allowed the director to exploit the member.
50
Unusual fact: Just two directors & B deliberately ripped of Glavanice *SPECIFIC
Who enforces the duties? -
General law duties: Enforced by the company (or liquidators if company is being wound up) Statutory duties: Usually ASIC but company can also seek remedies for statutory breaches Content of duties may be the same where they overlap Why have both general law and statue? o Statue allows ASIC to be involved in enforcement o Different remedies available under statue and general law
Consequences of Breaching a Duty [In General] -
Depends on whether it is a general law duty or a statutory duty Statutory duties o Civil penalty provisions by ASIC Disqualification from managing companies for a time period Penalty of up to $200,000 Compensation to company for any loss or damage o Criminal penalty (if v serious) Note: not possible under s180 Imprisonment Fine up to $360,000 (2000 penalty unit) Prison up to 5 years
-
General law duties o Enforced by company o Remedies eg compensation or damages paid to company by person who has breached the duty
51
s180: Duty of Care, Skill and Negligence
(Statutory as well as general law duty) Sources of the duty: o General law negligence cases o s180(1) o Contract of employment (for executive officers and other executive officers) - A director or other officer breaches this duty if he or she is negligent - Originally, under the common law, the courts took used a largely subjective test by: o Taking into account the background, skills and experience of the director concerned o was judged against the standard of someone with the same (poor) knowledge and skill - Replaced by the modern standard of care -
s180(1): Care and diligence -
-
i. Care -
-
A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: (a) were a director or officer of a corporation in the circumstances; AND (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer. What should you have done at that time in your company in ? The duty can be broken down into four categories: o Care o Skill o Diligence, AND o Delegation and Reliance
A director must exercise reasonable care Directors required to exercise the degree of care a reasonable person would exercise in the and with the same responsibilities as the director. 1. Reasonable person 2. 3. 4. Minimum requirements under the modern standard of care : Daniels v AWA Ltd o Every director must:
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