Fiduciary and Company

Topics: Fiduciary, Conflict of interest, Common law Pages: 8 (2683 words) Published: April 28, 2012
The concept of fiduciary obligations or duty is one of the most important areas in Australian law. In this project, I will try to illustrate and explain the duties in three kinds of relationships including the relationship between a director and a company, the relationship between the promoters and the corporation and the relationship between business partners. In each relationship, what kinds of the fiduciary duties should be performed is elaborated in details. The aim of the project is to help the readers to understand what “fiduciary obligations” actually means in Australian law.

Fiduciary Duty of Directors
According to the general law and the Corporations Act ss181 -184, as fiduciaries, the directors must have the fairness, loyalty and good faith when they implement the discretions and powers entitled to them. They cannot use their position of trust to benefit themselves at the expenses of the business without the company’s consent and full knowledge. In other words, we can say since the directors are acting on behalf of their company, they owe the duties of loyalty and good faith due to the fiduciary relationship with the companies. In addition, refer to the Corporation Act ss180, and the case of Percival v Wright 1902, the directors owed duties to the company but not shareholders individually. On the other hand, in depth, the fiduciary obligations of the directors can be divided into four aspects: 1. Directors have the duty to act in good faith for the interests of the company This duty arises from the general law- especially from principles of fiduciary law and ss181 and 184 of the Corporations Act. Under this duty, the directors should practice their bona fide in the way that they think is the interests of the company. Re Smith & Fawcett Ltd. This means the directors should give suitable considerations to the interests of the company as a whole in their decisions making process. However, there is difficulty in identifying which stakeholders should be considered to be part of “the company” for the purpose of this duty since these stakeholders concerned may include the company members, different classes of shareholders, creditors, employees and communities etc.

For the company member, refer to Darvall v North Sydney Brick & Tile Co Ltd (1988), the directors should have the duty to think of the interests of both the company as a commercial entity and also the company members. For different classes of shareholders, refer to the law case: Mills v Mills (1938), the directors should make the decision which was fair as among the different classes of shareholders. For the creditors of company, according to the case Walker v Wimborne (1976), the judicial opinion has held that under certain circumstances (the company is insolvent or nearing insolvency) it is the obligations for the directors, in releasing their duties to their own companies, but instead to consider the interests of the companies’ creditors. While in Parke v Daily news (1962) UK, it was held that it is irrelevant for the directors to consider the interests of the employees before the interests of the company as whole. Only in the case that the payments to employees and also the charitable and political donations under the situation that the company is viable and there is no signs showing the company is going to cease trading, then the payments may be beneficial to the company.

2. Directors have the duty use powers for proper purposes This duty arises under the fiduciary law as part of the general law and ss181 and 184 of the Corporations Act. Under this duty, the directors should manage a company and exercise the powers according to the company’s internal rules and the Corporations Act: like s198A listing the powers of directors and s198C listing powers of managing directors.

In order to identify if the directors has fulfilled the duty, we will compare the legal purpose and the actual purpose of the directors’ power....
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