Topic 8 - Consequences of Breaching Director's Duties

Question 1

Do Director’s owe a fiduciary duty to the company, and if so, who is the plaintiff in the case?

Answer 1

YES, therefore company is typically plaintiff

Question 2

How is harm distributed amongst the company?

Answer 2

Impacts company, shareholders and creditors

Question 3

Who can sue a director?

Answer 3

Company, ASIC, Shareholders

Question 4

What are 5 types of Remedies for Companies?

Answer 4

1. Injunction
2. Account of Profits
3. Rescission
4. Damages of Compensation
5. Constructive Trusts & Return of Property

Question 5

What are some Civil Penalties for Directors?

Answer 5

1. Declaration of Contravention
2. Pecuniary Penalty Order
3. Disqualification Order
4. Compensation Order

Question 6

Who are Penalties and Remedies imposed upon?

Answer 6

Penalties - Directors
Remedies - Company/Shareholders/Creditors

Question 7

What are some Criminal Penalties for Directors?

Answer 7

ss181-183 may become criminal if done recklessly or dishonestly –> May be Strict Liability

Question 8

What does Exoneration mean?

Answer 8

Reverse a criminal liability

Question 9

Can Shareholders ratify breaches of Statutory Duties?

Answer 9

NO

Question 10

Is Ratification invalid where company is insolvent?

Answer 10

• Full informed consent of all interested parties required for ratification

Question 11

What is Ratification?

Answer 11

Confirming something, usually by vote

Question 12

Can Board usually ratify directors’ breach of duty?

Answer 12

NO –> Unless board ratification is valid if disclosure is complete and consent is informed

Question 13

Can Company’s exempt directors from liability for loss caused by negligent?

Answer 13

NOT ANYMORE

Question 14

An officer can be indemnified for legal costs?

Answer 14

TRUE

Question 15

When can an officer NOT be indemnified for Legal Costs?

Answer 15

1. Criminal proceedings found
2. Officer found liable
3. Court denies RELIEF
4. (OR Company still needs to pay ASIC/Liquidator

Question 16

Can a COURT provide relief/indemnity for Officer?

Answer 16

YES –> relief may be granted wholly or partly if the court finds that the person:
a) Acted Honestly
b) Ought fairly to be excused for the conduct

Question 17

What do courts consider when providing Indemnity for Officer?

Answer 17

1. Honesty/Dishonesty
2. Remorse
3. Seriousness of contravention
4. Professional Advice
5. Compliance w Practice
6. Personal Gain

Question 18

Can a company use Insurance to pay officers?

Answer 18

Companies CANNOT insure directors for INTENTIONAL MISCONDUCT or WILFUL BREACHES