Australian Corporations Legislation For Various Mechanisms

Director’s and officer’s legal duties

Describe about the Australian Corporations Legislation for Various Mechanisms.

There are various mechanisms which play an important role in corporate governance by functioning so as to reduce conflicts within the company. There is separate degree of influence that each of these factors have with respect to a particular company. Director’s and officer’s legal duties is one of the corporate governance mechanisms in which focus is on the conflicts which are there between the shareholders and the managers and/or the directors. The main objective of the Duties of Directors is that they should ensure that the directors and officers are acting in a manner that is honest and with appropriate diligence and care, and that it is within the company’s best interest (Sarre & Fiedler, 1999). It has been observed that the directors function and role in the company is that of a senior decision maker which is central for ensuring good corporate governance in the company. However, it is not without controversy with respect to the determination of the appropriate roles that the directors’ play and ascertaining the types of directors which might be best suited for the companies needs. The issues that are familiar in this respect are those relating to the debate of corporate social responsibility and also the debate with respect to the structure that would be appropriate for the board of directors.

It is general observed that the Directors’ duties are an essential mechanism for ensuring corporate governance. The conflicts in a company that exist between the directors and shareholders are addressed by these duties by focusing on the possibility of the directors shirking which is addressed by duty of skill, diligence and care and a possibility which is there of the directors lacking any loyalty towards the company which is addressed by the duty of the director to act in a manner that is honest and in the company’s best interest (Monem, 2011).

There are various range of activities that consist of practices related to corporate governance, many of these are not relevant to the development or existence of legal principles which relate to the obligations of the directors. Moreover there is considerable variation as between the different categories of the companies and also between the companies which is in the same group. It has been observed that even amongst the major companies that are there the development of legal principles are not uniform and that there is no common underlying basis for doing a thing that is right with respect to the company’s standard. The main of corporate governance through the mechanism is for ensuring that the profitability is maximized which at the same time ensuring that the company doing what is the right thing to do. The legal principles try to resolve the conflicts which exists between recognizing the rule of business judgment on one hand and that of ensuring that there is exercising of the this business judgment rule. The difference that is there between them if found, without an surprise, in the fact that the basis of corporate factors are on legal principles that have a foundation that is very wide. It is reflected by the expectation of the relevant corporate community as to manner in which the directors are required to behave. The driving force behind this expectation is partly commercial in nature, and partly moral on one view which is considerations. On the other hand the basis of legal rules are much narrower grounds relatively which are founded mainly on the principles which govern a relationship that is fiduciary in nature. The main objective of these being is to lay down the standards that are the minimum which are for the behavior that is required by the director of various companies. It would hence not be realistic to have an expectation of director correspondence to exist between practices of corporate governance and that of legal principles. Further, on the other hand since there exists a connection that is obvious between them it can be justifiably expected that the corporate practices shall play some role for developing legal principle which relate to the duties of the directors (Sarre, 1995).

Controversy over directors’ roles

The charge of the responsibility for ensuring that there is maintenance of goof corporate governance is the board of directors of the company. There are essential performance and policy elements to such responsibilities.  The guardian of transparency, accountability and fairness is the board of directors which defend the investors’ interest and also the shareholders as well. It is required by the directors for fulfilling such responsibility to remain competent, active and informed with respect to the company’s supervision (Sarre, 2002). However the role of the directors is much more than simply regulators the ultimately also responsible for ensuring the business’s performance. There have been various revelations that have been made with respect to the HIH and One Tel directors who had been paying to their own selves bonuses that were extremely largely or continuing to receive emoluments that were internationally competitive while at their shame time the value of the share was decreasing or there was a critical position that there case flow had reached (Haines, 2000). There is however little that can be done with respect to ‘memory loss’ or there cannot be any amount of law or regulations which can lead to the elimination of hedonism. The issue that arises is that of regulatory failure. Rather than giving in too easily to the repeated failure spectre (Haines, 2000) it is essential that the policy makers make such regulatory processes for the directors that are effective and which would in turn ensure that a corporate collapse like OneTel and HIH is less of a possibility, if there is reconceptualizing the process of regulation’s nature.

It has been made clear by the Corporations Act 2001 (Cth) (Australian corporations legislation, 2000) that there is accountability that the directors have under law and the penalties are severe in case there is any event of misconduct or even if there is inadvertence. There is a duty on the directors under the virtue of common law as well as section 180-184 to act in a manner that is honest which is much more than a duty to just not act in a manner that is dishonest, to exercise diligence and care, not to use their positions improperly and not to use the information that they are privy to in a manner that is improper. The directors are moreover required to stay under the Australian Securities and Investments Commission (ASIC) scrutiny to ensure that they do not engage in any behavior which is in contravention of the law such as prohibiting them to trade while they are insolvent.

Duties of Directors as essential mechanism

There are however various changes which are still required to be incorporated with respect to the duties of the directors to ensure that it does not, lead to a corporate collapse (Baxt, 2005). It has been observed that there is existence of a corporation only because there is a law that provides to with a license for operating. Indeed when there was enactment of the laws of limited liability first there was no attempt which had been made for promoting a social ethical responsibility of the directors which is wider. It is necessary by way of amendment to the legislation that there be an expansion to the directors’ duties under the corporations’ law for ensuring that even though there primary aim is to ensure an enterprise which is profit making however the same should not be done at the expense of public safety, human rights, environment, the communities in which the operations of the corporations are conducted or its employees dignity (Hinkley, 2000). It is essential for the directors to ensure that the corporations not only make money but also act as good citizen.

Conclusively it can be stated that Australia over the last two decades has observed major corporate collapses. It has been observed in the large corporate giants such as Quintex, The Bank of South Australia, Bond Corporations and Pyramid and also more recently the HIH (The failure of HIH Insurance, 2003), OneTel and Ansett collapse . The incompetence or mischief by the directors of these companies has had been one of the contributory factors (Psaros, 2008). Though directors of some of the companies were acting in a manner that was ethical however the fact continues that most of them were acting in an unethical manner. The fact that there has been an increase in number of corporate collapses is distressing. The recent decade has observed too many corporate collapses (Horrigan, 2001). The direct impact of these collapses have been on the lenders, shareholder and the community at large which has suffered time and again due to such corporate collapse.

The position of a director is that of both privilege as well as responsibility. The main objective of this paper has been to provide a brief over of the director’s duties how they are related to ensuring good corporate governance (Jay, 2001). However, it is to be noted that Director’s duties are not the measures that are failsafe and will ensure the prevention of corporate collapses, however if there had been a greater attention which had been paid to such duties there is possibility that it could have been ensured that some of the greater corporate collapses could have been avoided.

References

Australian corporations legislation. (2000). Chatswood, NSW.

Baxt, R. (2005). Duties and responsibilities of directors and officers. Sydney: Australian Institute of Co. Directors.

Haines, F. (2000). Towards Understanding Globalisation and Control of Corporate Harm: a Preliminary Criminological Analysis. Current Issues In Criminal Justice, 166, 176.

Hinkley, R. (2000). The Profit Motive Can Work With a Moral Motive. The Australian Financial Review.

Horrigan, B. (2001). Teaching and Integrating Recent Developments in Corporate Law, Theory and Practice. Australian Journal Of Corporate Law, 13(182).

Jay, C. (2001). Collapse Incorporated: Tales, Safeguards and Responsibilities of Corporate Australia.

Monem, R. (2011). The One.Tel Collapse: Lessons for Corporate Governance. Australian Accounting Review, 21(4), 340-351. https://dx.doi.org/10.1111/j.1835-2561.2011.00151.x

Psaros, J. (2008). Australian corporate governance. Frenchs Forest, N.S.W.: Pearson Education.

Sarre, R. (1995). Keeping an Eye on Fraud: Proactive and Reactive Options for Statutory Watchdogs.Adelaide Law Review.

Sarre, R. (2002). “Responding to Corporate Collapses: Is There a Role for Corporate Social Responsibility?” [2002] DeakinLawRw 1; (2002) 7(1) Deakin Law Review 1. Austlii.edu.au. Retrieved 10 September 2016, from https://www.austlii.edu.au/au/journals/DeakinLawRw/2002/1.html

Sarre, R. & Fiedler, B. (1999). Investigating and Preventing Fraud Against Australian Businesses: Counting the Costs and Exploring The Strategies. Accounting Forum, 23(3), 275-292. https://dx.doi.org/10.1111/1467-6303.00015

The failure of HIH Insurance. (2003). Canberra.