Liabilities of a Director

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LIABILITIES OF THE DIRECTORS

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LIABILITIES OF THE DIRECTORS

A company is usually established by individuals or Directors (officers included) in this case so as to run it in appropriate manner in order to make maximum profits. For this to happen, it is for the company (Pandora Diamonds and Gems Pty Ltd in our case) to enter or make contracts with outsiders like Kaplan Bank Ltd and Space Solutions Pty Ltd as far as our case is concerned. The contracts made by the company with other outsiders are usually done by Directors who are, most often than not, act as representatives of that mentioned company and be able to be liable by the acts of its Directors as stated in s126. Directors acting on behalf of the company during any contracts are usually in a crucial position of trust within that company, and therefore, the vast array of legal duties will stretch out on their shoulders for holding that position. Due to this hot position, it is easier than not, for their powers to be abused in different ways. Directors have been known to abuse their powers in office for their personal gain. For example, Directors have been held liable for inappropriately using company’s funds in making their personal secret profits. In such cases, the corporate law comes into play (the Common Law and the Corporations Act 2001 (Cth)) and Directors or any other officer who recklessly breach specific duties and obligations should be prosecuted in the court of law. So for the purpose of liability, the common law and the Corporations Act 2001 (Cth) have been laid down so as to minimize the risk of wrongful behaviors by company’s Directors. In this paper, I will discuss the responsibilities, liabilities and duties of a director(s) in a company and give examples how Directors of various companies have been accounted or held responsible for infringing Corporations Act 2001 (Cth) laws.

Directors’ Duties

Since companies are usually established and managed by directors and a number of officers, these directors have that ostensible authority, collectively, to represent that mentioned company and not as an individual Director. As I am going to talk about it below, some individual directors (Andrew and Brian in this case) have been known to enter in to some kind of contract with outsiders (other companies) and not collectively as board of directors, as allowed under s201J and s198D of the Corporations Act 2001 (Cth). Directors, in most cases, have contravened these sections of the Act because they have their own material personal interests outside the company and have disowned their “duty to act honestly and in good faith to the best interest of the company” as per Part 2D.1 of the Corporations Act 2001 (Cth). Directors can only avoid the civil or criminal penalties for breaching the Corporations Act 2001 (Cth) only if they fully understand their liabilities and duties (Sievers, 1997 and Cassidy, 2006).

Some of Corporations Acts laws, which directors need to be watchful for, in order to avoid contravening Corporations Act laws, are and not limited to:

1. Act in good faith and honest for the best interest of the company.

2. By considering company’s interests ahead of their own.

3. Avoiding conflicts of duty and interest.

4. Duty to avoid insolvent trading by the company

1. Duty to act honestly and in good faith to the best interest of the company

As far as s181 of Corporations Acts 2001 (Cth) is concerned, any director including Andrew and Brian in our case, have to act “in good faith and in the best interest of the company (Pandora Diamonds and Gems Pty Ltd)” (see Darval v North Sydney Brick and Tile Co (1988) 6 ACLC 154) and not for their personal intentional purposes. In our case, before resigning, Brian set up his own jewellery business so that he can engage in a lucrative business of supplying jewellery to his...
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