Corporate Law & Practice
CASE STUDY OF BREACHES OF DUTIES OF DIRECTORS
As a general rule, directors and other officers owe their duties to the company. The persons, who act as directors or other officers in a company, are bound by common law duties, fiduciary duties under the law of equity, and statutory duties under the Corporations Act 2001 (CA). According to the facts given, this essay aim to examine and find out whether Popper, Jones and Brown have breached their duties as directors of Electrics Ltd, and what their potential liabilities for the breaches are under CA.
Duty not to misuse position or information
Under CA section 182 (1), directors owe the company a duty not to improperly use their position to gain any profits for themselves or for any other person or to cause damage or loss o the corporation. Section 183 (1) of the CA prohibits directors, officers or employees from making a gain for themselves or someone else or causing damages to the corporation. The duty not to misuse position or information is involved in the fiduciary principle applied in Regal (Hastings) Ltd v Gulliver, and governed by the fiduciary duty as well, which asks directors to avoid actual and potential conflicts of interest situations between the company and themselves. The directors’ duty not to improperly use position or information has wider and overlaps with both their fiduciary duty to act in good faith in the best interests of the company and the section 181 of CA.
There are two terms needed to be considered carefully while judging whether a director has breached the duty under section 182 or not. The first term is “improper”. The term of “improper” refers to a number of meanings, among which the best definition is to commit not conforming to the obligations, duties, and responsibilities of a directors or officers. In other words, directors may conduct improperly regardless of whether they were intent to act dishonestly or not. The second condition is to gain an advantage for themselves or someone else or to cause detriment to their company. A director, officer or employee may breach section 182 if they improperly use their position and information to get benefits or to cause damages or losses to their company, regardless of whether the benefits or damages are actually obtained, and no matter whom they gain the advantages for. When it comes to misusing information, the South Australian Supreme Court states that a director, officer or employee may contravene section 183 even though the information was not confidential.
In this case, although Popper disclosed that the vendor is his daughter in the proposed trade that Electrics Ltd acquires a land, he has violated the section 182 by improperly using his position to make a gain for his daughter, since he has known that proposed zoning changes would reduce the land value well below $1 million, which was reasonably foreseeable. What’s more, as a managing director of Electrics Ltd, Popper has contravene section 183 of CA as a result that he did not disclose the information that would cause detriment to the corporation if the company purchases the land from his daughter, but to offer a proposal to acquire the land to the company. Therefore, it has clearly showed that Popper has breached his duty of not misusing position or information and acting in good faith in the best interests of the corporation. Additionally, Popper did not conduct to avoid conflicts of interests between company and individuals as well.
Since Popper has contravened his statutory duties under section 182 and section 183 of CA, civil penalties may be imposed on him for the breaches under the civil penalty provisions. According to the civil penalties provisions combining with the fact that has been given, Popper needs to compensate Electrics Ltd for its damages or losses that the company suffers from trading with his daughter...
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