Lecture 5-Company directors' and officers' duties Flashcards Preview

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Flashcards in Lecture 5-Company directors' and officers' duties Deck (53)
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What are the two types of duties?

-duties under general law and statutory duties


What are the general law duties?

-the case law duty -divided into loyalty and good faith bit and care and diligence bit -under care and diligence you have the duty to care act with reasonable care and diligence -under loyalty and good faith there are 4 duties

1.duty to retain discretions

2.duty to avoid conflicts of interest

3.duty to act in good faith in the interests of the company

4.duty to use powers for a proper purpose


Who owes the general law duties?

-directors and senior executive officers


What is meant by an officer under general law?

-people the law considers could hurt the company in some way


What is the fiduciary relationship officers and directors have with the company?

-have to be the best version of yourself -based on the power they exercise and the vulnerability of the company to their wrongful actions


What are the statutory duties?

-governed by the corps act -sections in the Corps Act specifying what the duty of directors and officers is


What are the two statutory duties under the general law duty to act with reasonable care and diligence?

1.duty to act with reasonable care and diligence s180 2.Duty to prevent insolvent trading s588G


Who owes the statutory duties?

-directors as defined in the Corps Act (includes de facto and shadow) -most statutory duties apply to officers as defined in s9 (except s191 and 588G) -two statutory duties imposed on employees (s182, s183)


What are the two sections that don't apply to officers in the statutory duties?

s 191 or s 588G -s191= members of the board to tell the other board members they have conflict of interest -588G= insolvent trading


What does s191 do?

-members of the board to tell the other board members they have conflict of interest


What are the two statutory duties imposed on employees?

-s182= not make improper use of your position -s183=improper use of information


To whom are the duties owed?

-the company -both the general law duties and statutory duties apply (only in exceptional circumstances will the duty be to a shareholder ie Brunninghausen v Glavanics)


What are the facts of the case Brunninghausen v Glavanics?

-they do not owe the duty to shareholders! it is owed to the company -in exceotional: Brunninghausen v Glavanics= here director owes the duty to shareholder -Mr B. owned 5/6 of the sgares, G, owned 1/6, bith directris, G didn't take part -B wants to buy G's shares, B didn't tell that third party offered to buy all the shares at higher price -G then angry and sues -court decides that B owed duty to G


Who enforces the statutory duties?



Who enforces the general law duties?

the company (or liquidator if the company is being would up)


What is the breach of a statutory duty called?

- “civil penalty provisions” under Pt 9.4B of the Act


How must civil penalty provisions be proved?

-on the balance of probabilities, more likely than not then guilty (unlike criminal where it has to be beyond reasonable doubt -easier to prove -not criminal so do not send to jail


What are the punishments if court decides you breached statutory duty?

- pecuniary penalty up to $200,000: s 1317G ! -disqualification (banning) order: s 206C - compensation to company: s 1317H


Can breach of duty have criminal consequences?

-yes -not for breach of duty of care (laziness) - Yes for breaches of some other duties where done with intentional dishonesty or recklessness: s 184 -if misusing position etc.


What is the punishment if it is a criminal offence?

-fine or jail time ( it is only called fine is criminal!)


What are the sources of duty of care,skill and diligence?

-general law negligence cases -s 180(1) -contract of employment - for executive directors and other executive officers


What does s180 (1) do?

-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 corporation's circumstances; and -- (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.


What does negligent mean?

-if any of the three breached (general law negligence cases-s 180(1) -contract of employment)


What did it used to be like the duty of care?

-Originally, under the common law, the courts used a largely subjective test : -Took into account the background, skills and experience of the director concerned -A director with little knowledge of his/her company’s business, and little skill, was judged against the standard of someone with the same (poor) knowledge and skill


What is the interpretation of s180 (1)?

reasonable= it depends on the facts -that is where we use the case law -the closer you are to collapse the more you have to do -the case law adds the meat to the statute bone -the cases are what gives the meaning to the statute -cases= interpret the statute and to tell the dierction of action -also related to what office you hold, non executive director= less duty than CEO -role you play affects the duty, and the cases tell us how


What is the modern standard of care?

-There is no single standard for all directors and officers - The standard required of director X is the care that a reasonable person doing X’s job in X’s company would exercise (a largely “objective” test)


What are the minimum requirements (of duty of care) under the modern standard?

Every director must : 1.btain a basic understanding of their company’s business 2.keep informed about and monitor the company’s activities and regularly attend board meetings 3.monitor the company’s financial position -see Daniels v AWA Ltd (that is what it's based on)


Do some director have higher requirements in their duty of care?

-Directors with special skills are held to the standard of a person professing to have those skills: ASIC v Vines -Executive directors’ greater involvement in the business of the company leads to an expectation of greater knowledge, focus and awareness -the unqualified ones have the minimum standard -CEO expected to do the most of the directors -chair of the board also expected to know more


What are the facts of ASIC v Vines?

-Vines was a director but also the financial officer= held to a higher standard, expected to perform at a higher standard


Under which section can directors delegate their powers?

-s198D -may delegate any of their powers to any person, unless constitution restricts delegation