Law of Directors' Duties

2946 Words Mar 16th, 2011 12 Pages
The Law of Directors Duties

The law of Directors Duties stems from the systems of corporate governance in order to ensure that the persons occupying higher positions within the company will take good care of the company, as well as not act in a way that will create deficiency. There are 3 sources to the legal duties: the common law; the principles of equitable fiduciary duties; and the statutory duties stated under the Corporation Act section 180-183(Harris,J., 2008). The penalties of breach could be civil or criminal, or even both without being considered double jeopardy . Duties imposed by law are basically the idea that directors must:
- (1) act in good faith, in the interest of the company s 181(1)(a)
- (2) act for a proper
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This concept was also slightly changed by Daniels v Anderson to the point that the directors also need to be aware of irregularities by monitoring their delegates as well.
ASIC v Adler Adler, director and shareholder, Williams, founder and CEO of HIH Insurance, Fodera, HIH’s finance director were prosecuted by ASIC on the grounds of breach of directors duties under the Corporation Act ss 180(1), 181(1), 182(1) and 183(1). Adler received an insecure loan from HIH, by the permission and facilitation of Williams and Fodera. The loan was used to purchase shares of the companies Adler was involved, and partly used to purchase shares of HIH with the hope to mislead the stock market and gain advantage from the increase of share price.
The decision was made in favor of ASIC that the three directors were in breach of their duties. - This case shows a range of breach of fiduciary duties; acting in good faith for a proper purpose in the best interest of the company; conflict of interest and making secret profits. It also showed the inability of the directors to understand the concept of conflict of interest.(Lipton, P.,2003, p.275)
- The court has affirmed the rule of separation of special board positions in determining each director’s responsibility and level of duties.
- In interpreting s180, though there was no such word as duty of skill but the case has demonstrated that the court supports the view that s180 incorporated such directors’ skill. (para 372)
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