Question:
Write an essay on the topic “Director and Duties of Director”.
The person who has the responsibility of the management of the business activities of a company is the director of a company. There is at least one director in every small company and there may be many directors in large companies who manage the company’s business collectively. Often they are known as the “Board of Directors.”
The relationship between the company and the directors is governed largely by the duties of the Directors of which they are directors. These duties accordingly are generally owed to the company as a whole. It may be that during financially strenuous times to may so happen that the directors find themselves in a fiduciary position. There are in addition, circumstances that are limited in number under which there are duties that the directors have towards individual shareholders. The compliance with the Corporations Act 2001 (Cth.) is the fundamental principle that governs the responsibilities of the directors which they must comply with (Carson, 2012).
In summary, the legal duties and responsibilities under the Corporations Act are as mentioned below (Adams, 2002):
There should not be any kind of conflict of interest. The Directors should act in a manner that is motivated towards the best interest of the company and honestly.
It is necessary for the directors to avoid any kind of conflict of interest and manage it if the same arises.
Nothing must be done by the director which would be perceived by a reasonable person to be contradictory to the company’s actions or aims.
The degree of diligence and care that a reasonable person, if they were the company’s director in a given circumstances, would exercise is the standard of care which is required.
The directors must not use their position in an improper manner so as to cause the company a detriment or gain an advantage for themselves.
The information that is obtained by the Directors due to the position should not be used by them to cause the company a detriment or for their personal benefit or benefit of another person.
Insolvent means that the companies which cannot at the time when the debts are required to be paid to pay its debts.
The history of director’s duties and responsibilities begins when it first appeared in England and then from their made its way into Australia. The idea that the corporation would be an independent entity where the shareholders shall be held accountable and the directors shall govern was brilliant (Australian corporations legislation, 2013). This legal invention that was created had conditions that were required by the directors and corporations to oblige with and conform to various basic rules. These rules included those which were imposed upon the directors which imposed upon them duties so that they act in a manner that is honest, diligent, with care and skill. The problem that has been central to the company from the very beginning is that the advantage of this brilliant legal idea should be secured while ensuring that the management and the directors are kept accountable to the shareholders. Even to this date of company policy and law these problems still remain a challenge that is central for the corporations (Lipton, n.d.).
In his book “The Bold Riders” Trevor Sykes has reminded us of the list of failures like the collapse of (i) Adelaide Steamship which was the largest industrial group in Australia; (ii) Bond Corporation the nation’s ninth biggest enterprise measured by way of revenue; (iii) Bond Brewing which was nearly half of the industry of brewing; (iv) Bond Media, Channel 10 and Quintex which were the major three commercial networks of television; (v) Budget which was Australia’s largest car renter and various such other failures. Though it is not a pleasant reminder, however, it is necessary to be kept reminding of them. They provide the basis on which the policies and law with respect to the Corporations and responsibilities and duties of directors (Skyes, 1994).
This is the history of duties and responsibilities of directors which are required to be measured with the future and the present. The idea of the corporation is the one which has been taken from the past and remains a legal instrument that is central to the economic well-being. This is one of the major reasons why directors have been such an important part of the society and economy of Australia (Review of sanctions in corporate law, 2007).
In the present times in response to the various failures in the Australian economy, there was the imposition of numerous new legal duties upon the directors in Australia. A statutory standard of reasonable care and diligence was introduced by the Federal Parliament (Cassidy, 2016). There were various cases that were put forth before the court where attempts had been made for holding the directors at a standard that was higher than that which was expressed earlier under common law. AWA Limited v Daniels (AWA Limited v Daniels, 1992) is one of the best-known cases Rogers CJ. The decision, in this case, was the starting point; it was interpreted as the adoption of a practical approach towards the duties of the director. It reinforced the notion that the non-executive directors could be held liable only in the cases where there was gross negligence. It was through objective and not subjective standards that their duty was to be judged. Their functions of management could not be delegated.
In the appeal to this case (AWA Limited v Daniels, 1995), the majority decision came from the New South Wales Court of Appeal in which a more rigorous standard was upheld then that which at the first instance was found. On the part of all the directors, a minimum standard of competence was required under law. It was to ensure that the decisions of the directors were independent, involved their discretions active involvement and informed. There was the rejection of the notion that the director’s liability was limited only to the case involving gross negligence (Tomasic, Bottomley, & McQueen, 2002).
If the Australian cases of the past two decades are analyzed one can observed two trends in it, first being that the judicial impatience is growing with respect to passive or sleeping directors on the Australian companies’ boards (Law, 2012). Second is that an appreciation which was realistic with respect to the fact that all functions of auditors, system controllers and managers of the company could not be assumed by the director. The duties and responsibilities of the directors have become more stringent as compared to the earlier times.
If there is the conflict of personal interest, then it is the duty of the director to disclose the same at the meeting of the director’s for public companies. This rule does not, however, apply to proprietary companies with single directors. In the case of the sole director of proprietary companies, the disclosure of material personal interest is not required under section 191(1) of the Corporations Act. Further in a proprietary company, there are fewer financial disclosures that are to be made as compared to a public company (Ramsay & Hoad, 2000).
There are various consequences that may be faced by the directors due to contravention of law, and the remedies that are available before the court for the breach of duty by a director are (a) declaration or injunction; (b) compensation or damages; (c) property of the company if the same is traceable is restored; (d) contract’s rescission; (e) profits’ account and (d) dismissal of summary proceedings.
The contravention of the statutory duties of the director under section 180-183 of the Corporations Act would involve concurrently a breach under equitable or common law duties of the director to the extent which these statutory duties are co-extensive with the general law duties. Under the Corporations Act section 179, private litigation is preserved for director’s breach of general law duties.
If there is a debt that the company has incurred by the directors negligently on or before 23rd June 1993 and immediately prior to the time when the debt was incurred (a) there were reasonable grounds to believe that the company will be incapable of paying its debts at the time that they become due; or (b) there are reasonable grounds for expecting that if debt is incurred by the company when they become due it will not be able to pay such debts. In such case, there would be a joint and several liabilities on the directors to make such payments. This has been well established in the case of Neville Jeffress Properties Ltd v Bleyer (1991) NSW, Southern Star Group Pty Ltd t/as KGC Magnetic Tapes v Taylor (No 2) (1991) NSW and also the case of Panuane Trading Pty Ltd v GB Nathans & Co Pty Ltd (1991) NSW. There is now an existence of concepts of un-commercial transactions, loans that are unfair, voidable transactions and insolvent transaction. There is a duty now imposed under section 588G of the Corporations Act preventing them from trading the company into insolvency. Relief can be granted by the courts in civil proceedings as well for default, negligence, breach of duty or breach of trust, relief may be given by the court in the case wherein the person had acted in a manner that was honest and if in the given circumstances he ought to be excused fairly for the breach, default or negligence (Section 1318(1) Corporation Act). It was stated in the case of Regal (Hastings) Ltd. v. Gulliver that actions ratification could have been obtained. Further in the case of Furs Ltd. v. Tomkies (1936) HCA, it was indicated by the court that the directors actions needs to be ratified in a general meeting by the board. It was held in the case of Bamford v. Bamfor (1969) UK it was opined that by making a frank and full disclosure and calling the general body of the shareholders together forgiveness and absolution could be obtained of their sins, provided that the act a whole was not ultra vires for the company(Ciro & Symes, 2012).
It is out of the present that the future will grow, it clear that directors of Australian companies would be required to operate in an environment which is undergoing change and reconsideration. It is now necessary for the directors in Australia to become even more aware of their duties. This is not in response just to the failures that occurred in the Australian corporation community a decade ago but even in a research by Mr. Richar Hoad and Professor Ian Ramsay of Melbourne University results produced stated that (Ramsay & Hoad, 2000) the procedures of performance review of directors and management are not discussed by 65% of the companies, and it is only 42% of large companies that review the management’s performance regularly. Beyond the issue of striking a balance between the lifting of the company’s director’s performing of duties and their legal position, there are various other long-term problems that need to be addressed.
Despite the various issues that have been there in the recent past corporation’s history has been on which has been a brilliant legal idea which the business people took up and became a great advantage for the modern economies.
References
Adams, M. (2002). Essential corporate law. Sydney: Cavendish Pub. (Australia).
Australian corporations legislation. (2013). Chatswood, N.S.W.
AWA Limited v Daniels, 10 ACLC 933 (1992).
AWA Limited v Daniels, 37 NSWLR 438 (CA); 13 ACLC 614 (1995).
Carson, R. (2012). Certification and Duties of a Director of Physical Activity. Journal Of Physical Education, Recreation & Dance, 83(6),
Cassidy, J. (2016). Has the ‘Sleeping’ Director Finally Been Laid to Rest?. Australian Business Law Review, 102, 115-116.
Ciro, T. & Symes, C. (2012). Corporations law. Pyrmont, N.S.W.: Thomson Reuters (Professional) Australia Limited.
CORPORATIONS ACT 2001. (2016). Austlii.edu.au. Retrieved 23 June 2016.
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