A company’s director stands for the body undertaking the authority and the responsible body of a company. The company owner rely upon the director of a company. It is the company’s shareholders who are addressed as owners and company directors govern the management body of the organisation. It is the solely the management body which undertakes the affairs concerning business activities of a company in respect of the shareholder of a company. The company is the separate legal body, and the director is the sole caretaker of the company operating therein.
This paper intends to discuss, what does director stands for and their authorities, responsibilities associated within the company under the Corporation Law of Australia. This paper will elaborate on the duties, responsibilities, activities need to carry out by a director on the basis of current day responsibilities and duties. The primary difference between the function of a director within the publicly owned company and a private company will be focused under this paper. The paper also depicts out the consequences that the directors face in case of any failure in exercising the responsibility and the remedies too that are available in the hands of directors. The paper focuses mainly on the future of directors duties and practices in Australia.
The term director came into existence in section 9 of Corporations Act 2001, The director of the company is a body appointed as a director taking into consideration the qualitative factors looking upon the roles and responsibilities. The name director is assigned to such a position which functions in the business operations. An alternate director is a body exercising authority in the absence of primary director (Hill and Conaglen 2018). Whereas, if a body is not appointed as a director for the very purpose of this particular act and still it is serving its duties, and the other present Individual bodies are per the director, such a person fails to achieve the status of being director of a company. Such personal exercise authority by his/her personal expertise knowledge and cannot be fully relied upon (Hedges and Ramsay 2016). The role of the director can better be understood with the thorough analysis and study of the case of Shafron v Australian Securities and Investments Commission [2012] HCA 18.
The director of a company who is addressed with a pool of trust is levied with certain duties and responsibilities which falls under the corporation act. The various duties of the director in relation with the company fall under section 180, 181, 182, 183, 191 and 588G of a Corporations Act 2001. The corporation act, section 180 wants the director of the company to exercise duty as per the norms and regulations and in an effective manner. The extent of conscientiousness is similar to that of any other person. A test is held to measure the extent of conscientiousness which is termed as an objective test (Mendez, Pathan and Gracia 2015). Australian Securities and Investments Commission v Sino Australia Oil and Gas Limited [2016] FCA 42; 111 ACSR 220 also intends to express the same fact. The director should act in a manner that ensures the sole interest of the company.
According to the Companies Act 2001, section 181 ensure the affairs of the company are maintained in good terms. It is the director who must deal with the hard comings of the company to ensure the smooth functioning of the business. Every action must be following a suitable objective that should be in favour of a positive response (Barker 2016). The above mentioned facts are transparent in the case of the Australian Securities and Investment Commission v Adler [2002] NSWSC 171.
According to the section 182 of the Companies Act 2001, a director should not exercise his duty to deal with his personal goals. It also prohibits to carry out any activity that might cease to hamper the goodwill of the company. (Appuhami and Bhuyan 2015). In the case study of Australian Securities and Investments Commission v Vizard [2005] FCA 1037, It is seen that the directors are clearly banned from the utilisation of power as a means to achieve own goals.
According to the corporation’s act of section 183, a director making use of any such information available to him because of his designation and authority for his/her motive is also a state of the criminal offence. Corporations Act 2001, section 588G, does not permit a director or board of directors to involve into any trading related activity in case the company has collapsed or bankrupted (Varzaly 2015). There lies corporate ethics that are required to follow by the director. A director is a principal body, on his hands relies on the governing activities of a firm. The director leadership vision enables the other present employees to follow the path, and a director has to make sure that the subordinates are performing well. If the director fails to remain ethical then how come the subordinate is going to follow directors lead. The director needs to act very carefully and professionally. Achieving personal needs by utilising the designation of the director is a violation of rules and should be given much of importance (Hanrahan and Ramsay 2018). The director of a company is hired to look after the day to day activities being carried in the organisation. The nature of the director should be professional and should be of introvert personality. The director should have the eligibility and interest to deal with the employee problems, a director besides operating its activities should also be a part of socialisation. The director should socialise with its employees; this gives a chance to explore more and more about the employees and evaluate its performance. There exist a company’s article of associations, which lay down information about the director rights, duties and powers.
Hence, the duties and responsibilities of a director at this very present time serve to be very accurate. There are many dispute cases related to the activities of director and falls under the common law cases. The directors need to exercise duties and responsibilities cautiously. They should implement a formal judgement while using its functions. The court of law clarifies the directors to step back and refrain from acting in case of an informal performance and to eliminate the objective to acquire personal goals. Thus, banning the use of authority to achieve any own objectives.
Moreover, with the change in time, an infinite number of cases have taken place regarding a director and the number of cases has been escalated to close the dispute and arrive at a solution. This situation has brought in the fact that there is an extreme need to implement a legislative body that will take care of such dispute and arrive at a solution (Keay 2015). Such a demand has led the introduction of the legislative body such as The Australian Securities and Investment Commission Act (ASIC). Although the ASIC has been a healthy body in depicting out the critical cases related to directors a publicly accepted legislation body is required to overcome with any future issues, such body needs to be recognised and accepted publicly. There comes a Corporation Act 2001, which elaborate the rules and policies that the director is required to follow beside the circumstances that the director will face in case of any criminal offence. The laws, regulations and policies are applicable for both publicly owned body as well as for the private sector. The individual frames irrespective of the difference incorporation activity and structure has to follow the same set of rules and regulations.
Moreover, in the case of a publicly owned company, a more strong set of rules and regulations are to be implemented as in a public company there is a number of participation of publics in undertakings of business processes. The public company need to have such extra measure as the money which relies upon the hand of the directors and company are mainly the money of local and public interest and desire in the company are two main primary criteria for any successful operating business unit. Whereas, in the case of sole proprietary company same concept applies, as the money which relies on the hand of directors and company is a belonging of shareholders. A shareholders interest to participate in the business activity is the symbol of the smooth functioning of the company.
The duties and activities of director fall under the corporation’s act, the activities are binding the trustworthy act of directors to take place in Australia. Anybody failing to operate under such policy will be penalised with a heavy amount as per this act. The corporation act lay down all the consequences that will be faced by the director in case of any default, the act clearly states all the consequences in the order of list that together leads to policy, which falls under the section 206C, 1317E and 1317H of the Corporations Act. There exists a 206C section of the corporation act, according to which a director is disqualified or eliminated in case if he/she had committed and undertaken any breach of duties. Section 1317E of the act also states that the director will face severe charge and will be penalised with a civil penalty in case the director has violated the rules and regulations of the corporation act. Section 1317H act of the corporation act authorise the court to apply for compensation charge orders against the director if so needed or in case of any disaster circumstances, which may be termed as violation of rules and regulations (Summerhayes 2017). All the laws that adhere to the activities that are required to be carried upon by director and broad of directors are mentioned in the policy. Necessary changes require are considered and made, and hence, no such modifications are required as per now and proper implementation of the same is required. A separate functioning body is required to make sure speedy disclosure of corporate disputes and arrive at a settlement. ASIC being a functional body need to take care of dispute regarding directors and should take care that the functioning of the organisation stays in the right hands and the company should operate in accordingly. The body should strongly implement the rules, policies such that any organisation may think twice to hire such directors that may fall to the default category shortly.
Conclusion
Thus, it can be concluded that a director is a governing body within an organisation whose authority and power relies on his hand and should not take advantage of the authority. A director of a company is appointed undertaking various circumstances towards the company, and a director should possess the managerial and leadership qualities to understand the authority and responsibilities which rest upon his hand. A person appointed as alternative director, exercising duty in the absence of primary director cannot be addressed as a main primary body and should act accordingly, the alternative director should not implement a plan for replacing the primary director as of his interest. The director possessing information should not use such information as of to achieve its own goals, neither this information is to be shared with any other corporate being publicly owned company or private company. The Corporations Act has been formulated, and every operating firm within the region of Australia should adhere to it accordingly. Because of the management issue such as the role of directors in excreting its activities and duties, the formally acting body such as ASIC has taken place over time. A minimum of one director is required to register in a company whereas; there is no specific barrier or limitation for the number of directors.
References
Appuhami, R. and Bhuyan, M., 2015. Examining the influence of corporate governance on intellectual capital efficiency: Evidence from top service firms in Australia. Managerial Auditing Journal, 30(4/5), pp.347-372.
Australian Securities and Investments Commission v Adler [2002] NSWSC 171
Australian Securities and Investments Commission v Sino Australia Oil and Gas Limited [2016] FCA 42; 111 ACSR 220
Australian Securities and Investments Commission v Vizard [2005] FCA 1037
Barker, R., 2016. The Duties and Liabilities of Directors—Getting the Balance Right. The Handbook of Board Governance: A Comprehensive Guide for Public, Private, and Not-for-Profit Board Members, p.249.
Hanrahan, P. and Ramsay, I., 2018. 17. Regulation of mutual funds in Australia. Research Handbook on the Regulation of Mutual Funds, p.414.
Hedges, J. and Ramsay, I., 2016. Has the Introduction of Civil Penalties Increased the Speed and Success Rate of Directors’ Duties Cases?.
Hedges, J., Bird, H., Gilligan, G., Godwin, A. and Ramsay, I., 2016. The policy and practice of enforcement of directors’ duties by statutory agencies in Australia: An empirical analysis. Melb. UL Rev., 40, p.905.
Hill, J.G. and Conaglen, M., 2018. Directors’ Duties and Legal Safe Harbours: A Comparative Analysis.
Keay, A., 2015. The shifting of directors’ duties in the vicinity of insolvency. International Insolvency Review, 24(2), pp.140-164.
Méndez, C.F., Pathan, S. and García, R.A., 2015. Monitoring capabilities of busy and overlap directors: Evidence from Australia. Pacific-Basin Finance Journal, 35, pp.444-469.
Ramsay, I., 2015. Increased corporate governance powers of shareholders and regulators and the role of the corporate regulator in enforcing duties owed by corporate directors and managers. European Business Law Review, 26(1), pp.49-73.
Shafron v Australian Securities and Investments Commission [2012] HCA 18
Summerhayes, G., 2017, February. Australia’s new horizon: Climate change challenges and prudential risk. In Speech delivered at the Insurance Council of Australia Annual Forum, Sydney.
The Corporations Act 2001
Varzaly, J., 2015. The enforcement of directors’ duties in Australia: an empirical analysis. European Business Organization Law Review, 16(2), pp.281-319.
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