Director’s Duties And Responsibilities Under Australia Corporation Law

Who are directors of company and their duties under Australia Corporation Law?

Question:

You are required to write a research essay addressing all of following points: 

• W ho are directors of company? W hat are their duties of directors under Australia Corporation Law? 
• Give a short history of the evolution of director’s duties and responsibilities. Please enumerate their duties and responsibilities today. Are their duties the same in proprietary companies and public companies? 
• Explain the consequences should directors contravene the law and the remedies available. 
• W hat do you see in the future direction of director’s duties in Australia? 
• Please cite relevant case law and the statutes in your answer and provide 
proper references.
 

According to the Section 201B of the Australia Corporation Act, an individual may be appointed as a director if he/she has completed the age of 18 years and by the permission granted by ASIC under section 206F. The director is regarded as the back-bone of the company. It is the duty of the director to act for the welfare of the company with honesty, care, diligence, and goodwill. In this topic, we will discuss the duties and obligations of the director under the Corporation Act of Australia and the qualities in the directors to be perceived in future.

Director of the company should complete 18 years of age. It is compulsory for the director to reside in Australia only if he/she is the only director of the company. It is not mandatory for all the directors to reside in Australia if one of them is already residing in the Continent(Purcell & Loftus, 2007).

To hold the position of the director, a written consent of the person who wants to be the director must be provided to the company which must be further notified to the ASIC for his/her appointment (Cole, 2012).

In specific conditions, the duties and obligations of a director are imposed to a specific person by the Corporations Act. He/she is not the formal director of the company, but has all the rights to give instructions to the formally appointed directors. However, a person can also be prohibited by the court and ASIC from being a director or to be a member of the management of the company in specific cases, for example, if he or she is guilty of breaching the Corporation Act (Baxt, 2005).

According to the Section 5 of the Australia Corporation Act 2001, the permission of court is essential for a person to hold the position of a director if he/she has been convicted for offences or is unable to pay their dues.

According to the Section 9 and also under several other sections of the act, a director must inform the company regarding his/her resignation by a written notice or he/she may notify the resignation to the ASIC (Marshall & Ramsay, 2012). If he/she fails, it is the duty of the company to notify ASIC about the resignation of the director.

Section 5.3 of the act states the duties and liabilities of the directors. The director of a company is issued a wide range of duties under the Corporation Act. The most important duty of the director is to act in trust, loyalty and reliance. It is the duty of the director to work for the welfare of the company and to consider best for the company (Redmond, 2012). The director must implement concern and carefulness. It is the duty of the director to prevent the trade of the company when it is unable to pay its debt. The director has to report the liquidator about the affairs of the company in the cases when the company is wound up. For example, director may help the liquidator by providing him/her the records or the data when the company is wound up (Anderson, 2009).

History of evolution of director’s duties and responsibilities and their current duties and responsibilities

If the director is found guilty of contravening the act and fails to perform their duties, it will be considered as a criminal offence and he/she will be liable with a penalty of $200,000 or the imprisonment of upto 5 years or both. He/she may also be in breach of civil penalty provision and may be ordered by the court to pay upto $200,000 to the Commonwealth. He/she might be held personally liable to compensate the company or the others also for the damage or loss to the company. He/she may also be prohibited by the law from managing the company(Deloitte, 2013). Section 180 and several other sections of the act states that the duties and obligations of the director continue to exist even after the failure of the registration of the company. 

The general duties of the directors are kept under Section 180 to Section 187 of the Corporation Act. Section 180(1) refers to the care and diligence by the director which comes under civil obligation (Langford et al., 2015). It is expected from the director of a corporation to exercise their powers and discharge their duties with lot of care and attentiveness which is expected from a reasonable person if they were in the similar conditions and had occupied the similar position (Lowry, 2009).

Section 180(2) states that a director must fulfill the requirements of subsection (1) as well as their duties in accordance to the common law and in equity, in respect of the business judgment if they make the decisions in good faith and purpose. The director must not fulfill personal interest while taking decisions for the company and should act in the favor of the company.

Section 180(3) describes the business judgment as the decision to take action or not in the matters related to the business operations of the company.

Section 181 states ‘act in good faith’ as the civil obligation of the directors. Subsection (1) binds the directors to act in good faith and for a proper reason while exercising their powers and discharging their duties and he/she should work for the welfare and best interest of the company. Section 181(2) states that a director who contravenes the clauses of the subsection (1) will be in breach of this subsection also.

Section 182 of the Corporation act states that a director must not make improper use of his position for unfair purposes.  Subsection (1) mandates the directors not to take benefit of their position to gain some advantages for them or for others. They are prohibited to use their position to cause disadvantage to the corporation.

Section 183 prohibits the directors for improper use of the information. Subsection (1) specifies that the information obtained by the directors should not be used to solve illegitimate purposes of themselves or for others and must not cause harm to the company itself(Corporate Law Economic Reform Program, 1997).

Section 184 of the act holds the director liable, if he/she contravenes the clauses of good faith, use of position, and the use of information, of criminal offences. Subsection (1) holds the directors liable of criminal offence if they are irresponsible, purposely corrupt, and fail to discharge their duties in good faith and purpose for the welfare of the company. 

Consequences of directors contravening the law and the available remedies

Subsection (2) states that the directors are held liable of criminal offence, if they use their position for the improper purposes and act dishonestly with the intention to gain direct or indirect profit for themselves or for others. The directors are contravening the law if they are irresponsible towards their position to gain direct or indirect advantage for themselves or others.

Subsection(3) states that director will be held liable under criminal offence if he/she misuses the information kept with him/her for the benefit of himself/herself or others either intentionally or carelessly.

Section 185 of the act subscribes the interaction of the clauses of sections 180 to 184 with other laws. Paragraph (a) explains that all the duties and liabilities mentioned in the sections 180 to 184 will be in effect for the persons as their office or employment is related to the corporation act. It does not prevent the initiation of the civil proceedings in case of breach of a duty or a liability referred to in the paragraph (a).

The duties of the directors are same whether in subsidiary company or public company. These are the general guidelines to be followed by the directors, officers, and the employees as well. Although section 187 of the Australia Corporation Act permits the director to act in good faith and for the good will of the subsidiary as well. A director of a corporation is supposed to be a wholly-owned subsidiary of a body corporate. It is expected from him to work honestly and for the welfare of the subsidiary if the constitution of the subsidiary provides the authority to the director to take actions in good faith and for the best interest of the holding company. The director must act in good faith and for the interest of the subsidiary, if the subsidiary is not bankrupt during the director’s tenure and prevented from being bankrupt due to the director’s act.

In Australia, we should reorganize some of the checks and balances provided by our law to sustain honesty, skill, care, and diligence on the part of the directors who govern the companies for the welfare of the share holders, employees as well as for the society (Kirby, 1998). In future, it will be essential for the directors to be informed about the technological trends and global changes(Horrigan, 2012).  In this way, the director of the corporation will be able to keep pace with the challenges occurring to the corporation.  

Conclusion

The Corporation Act of Australia provides sufficient duties and obligations to the directors of the Corporation. Hence, these are the mandatory obligations of the directors. But for the progress and improvement in their capabilities in future, the directors must be aware about the global .technologies and trends prevailing in the society.  

References

Anderson, H., 2009. Piercing the veil on corporate groups in Australia: the case for reform. Melbourne University Law Review, 33, pp.333-67.

Baxt, P.R., 2005. Duties and Responsibilities of Directors and Officers. 18th ed. Australian Institute of Company Directors.

Cole, S., 2012. Mind the Expectation Gap– the role of a company director. Sydney: Australian Institute of Company Directors.

Corporate Law Economic Reform Program, 1997. Directors’ Duties and Corporate Governance. Australian Government Publishing Service.

Deloitte, 2013. Duties of Directors. [Online] Deloitte & Touche 

Horrigan, P.B., 2012. Directors’ Duties and Liabilities – Where Are We Now and Where Are We Going in the UK, Broader Commonwealth, and Internationally? International Journal of Business and Social Science, III(2), pp.21-45.

Kirby, M., 1998. The Company Director: Past, Present and Future.

Marshall, S.D. & Ramsay, I., 2012. Stakeholders and directors’ duties: Law, theory and evidence. UNSW Law Journal, 35(1), pp.291-316.

Purcell, J.A. & Loftus, J.A., 2007. Regulatory Developments in Corporate Social Responsibility: Directors’ and Officers’ Duties. Corporate Law Teachers Association.

Redmond, P., 2012. Directors’ duties and corporate social responsiveness. UNSW Law Journal, 31(1), pp.317-40.