Director's Duty of Care

Topics: Debt, Tort law, Standard of care Pages: 6 (2127 words) Published: November 9, 2011
Major Assignment: Directors’ Duties Case

Part A: Whether the directors are in breach of their duties of care, skill and diligence Issue1: who owes the duty?
According to S 9, the person who is appointed to be a director or the person who is appointed to be an alternate director and is acting in that capacity, is a director of the company. (S9) As we can see from the case, Peter Pansy, Fred Fuchsia and Marie Gold are directors of the company, and Alison Astor who is appointed to fill a casual vacancy on the Board is also a director; therefore, they all owe duties. As the executive directors appointed a skilled person to manage the Australian wide floral delivery service on the internet, the pointed person is also a director. In a word, all of them are the directors, who owe the duty of care. Issue2: Who is the duty owed to?

In this case, generally the directors are owed duties to the company as a whole. The company can sue those directors for remedies and enforce breaches of duties. The company also owned duties to individual shareholders. Issue3: what are the duties?

The director’s duties can arise from both statutory and general law; except remedies, there is no significant difference between the sources of duty. ( Hanrahan, P., Ramsay, I. & Stapledon, G. Commercial Applications of Company Law, Edition 12, 10-200) In order to implement their duties, directors must guide and monitor the management of the company; the well-known AWA case developed a series of detailed applied standards. (Daniels v AWA (1995) 13 ACLC 614) The executive appointed by directors committed a misleading and deceptive conduct, false statement when disclosing the financial status of the project. As s190 states that if directors delegate a power under s198D, the directors are responsible for the exercise of the power by the delegate. The executive, as a director of the company, was given powers by other directors and must wield the powers to manage the daily activities in the company. However, the delegation is not appropriate; because the delegate had special skills in floral design but "had no experience in internet marketing or sales", there is no reasonable ground to believe this delegate will perform the project properly. Since the delegate is negligent in disclosing the monthly management report, the directors had breached their duties by without making proper and reasonable enquiries to the costs figures in order to estimate whether the report offer a true and fair view of the profit and loss. (ASIC v Loiterton (2004) 50 ACSR 693) In conclusion, the directors of Lily Ltd are in breach of their duties of care, skill and diligence. In the accident caused by the negligence of Dan Daisy, the directors did not insure the company against traffic accident, which leads to Lily Ltd economic losses. According to minimum standards, directors are in breach of duty by failing to enquire or ignore of risks. Lily Ltd rendered floral delivery service, a reasonable person who has a basic understanding of this kind of business will realize that Lily Ltd runs a high risk of traffic accidents and taking out insurance is the effective measure to minimize the dangers of driving. In this circumstance, a reasonable person with the same responsibilities as the directors would buy an insurance to protect the company from economic losses. However, the directors Peter, Fred and Marie ignored the great risk and failed to make an agreement on insurance policy, they had breached their duties of care. It is a serious issue that a major client of Lily Ltd always paid bills behind time , which may cause the rupture of cash chain and have adverse impacts on company's development. As the minimum standards regulated, directors must constantly monitor the financial performance and ensure liquidity. The directors breached their duties since they did not become familiar with the business of the company so that they could form a sound judgment about whether the cash chain was...

Bibliography: [ 2 ]. Daniels v AWA (1995) 13 ACLC 614
[ 3 ]
[ 4 ]. Sheahan v Verco (2001) 19 ACLC 814
[ 5 ]
[ 6 ]. ASIC V Plymin (2003)
[ 7 ]
[ 8 ]. Statewide Tobacco Services v Morley (1990)
[ 9 ]
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