Sections 180 to 184 of the Corporation Act 2001 and Their Application to Directors
Issue
Whether director of the Uninest breach any of their general as well as statutory duties, and whether Neals as the consultant only bear any liability towards the Uninest?
Corporation Act 2001 imposes number of obligations on the directors of the company, and some of these obligations are compulsory in nature. General and statutory duties of the directors of the company are stated below:
Section 180[1] of the Corporation Act 2001 imposes duty related to the care and diligence on the directors. As per this section, it is necessary for the directors to act with due care and diligence while conducting their functions as the director of the company.
Section 181[2] of the Act defines the provisions related to the good faith. As per this section, directors must take actions in good faith, for appropriate purpose, and in the best interest of the organization. This section also impose obligation on directors to evade the conflict of interest.
Section 182[3] of the Act imposes the obligation on directors not to use their position for improper manner for getting the benefit for themselves or for someone else.
Section 183 of the Act imposes the obligation on directors not to use the information received by them in the capacity of director for improper manner for getting the benefit for themselves or for someone else.
Section 9 [4]of the Act defines the meaning of officers, and as per this section any person can be considered as the officer who is making or participating in making the decisions of the company. All above provisions are also applicable on the officers of the company also.
In the present case, directors of the Uninest breach their obligations stated under section 181, 182, 183, and 184 of the Act.
- Directors fail to act with due care and diligence while performing their duties.
- Directors fail to act in good faith, for proper purpose, and in the best interest of the company, as they fail to get the takeover bid from Urbanlodge.
- Directors use their position for improper purpose by approving the resolution related to loan provided to directors of the company.
- Directors use the information get by them for their own purpose.
This can be understood through case law ASIC V Adler 2002,[5] Court decided that directors failed to perform their duties stated under section 180, 181, 182, and 183 of the Act in the following manner:
- All three directors of the company that were Adler, Williams and Fodera breach their director duties under section 180 of the Act.
- Adler contravenes section 181 of the Act, as he fails to act in good faith and in the best interest of the company.
- Adler also breaches section 182 of the Act in context of adjusting the loan of $ 10 million from HIHC to PEE.
Facts of ASIC v Adler are similar to the present case, as both the cases include the carelessness on part of the directors, and in both the cases directors prefer their own advantage instead of the company advantage.
Neals is considered as the officer of the company and above stated provisions are liable on him also, and because of this Neals is liable towards the company.
Conclusion
All the directors and officers of the company are liable towards the Uninest.
Breach of Directors’ Duties in Uninest’s Takeover by Urbanlodge
Issue
- Whether Shane is liable for any breach of the general and statutory duties of the director of the company?
- Whether Shane is liable for any penalty in case he breach his director duties stated under the Act?
Section 181 of the Act defines the provisions related to the good faith. As per this section, directors must act in good faith, for proper purpose, and in the best interest of the company. This section also impose obligation on directors to evade the conflict of interest.
Section 183 of the Act imposes the obligation on directors not to use the information received by them in the capacity of director for improper manner for getting the benefit for themselves or for someone else. This section further state, directors of the company must not use the information received by them in the capacity of the director of the company for the purpose of causing any damage to the company[6].
In other words, if any person gets the information because they hold or not hold the position of director, officer, or employee of the company then such person is under obligation to not use the information in wrong manner for taking the benefit for themselves, or for another person, or for causing damage to the organization. This section also applied on the directors, officers, and employees who are retired. Information in this context is considered as the insider information which can be taken as an advantage by any person for getting the advantage by using that information or by providing that information to any other person.
Section 1317E[7] of the Act state, in case Court stated that a person has breach the provision of the civil penalty, and then Court makes the declaration of the contravention. This section further states that any breach of directors of officer’s duty will fall under this provision. Once the declaration has been made, then ASIC can seeks the pecuniary penalty order under section 1317G or disqualification order under section 206C of the Act.
Section 1317G[8] of the Act states that, court can make the pecuniary penalty of up to $200,000.
Section 206C[9] of the Act state, Court has power to disqualify the director of the organization from handling the organization functions for any period of time which court thinks fit.
Shane is the director and also the shareholder of the company.
Primo performs the construction work from Land stocks limited, and while working as the director Shane receives the information that Land stock Limited are going to call for tenders from different construction companies. In this Shane incorporates new company for the purpose of getting the tender.
Breach of Directors’ Duties in the Construction Contract by Primo and Iconstruct
Later, Shane intentionally reduces the price of tender after getting knowledge of the tender price decided by the Primo constructions. In this, Primo suffers great loss by losing the contract.
Section 183 of the Act applied in this case, and as per this contract if any person gets the information because they hold or not hold the position of director, officer, or employee of the company then such person must not use the information in wrong manner for taking benefit for themselves, or for any other person, or for causing damage to the organization, then such person breach the director duty stated under section 183 of the Act. In the present case also, Shane breach the section 183 by using the information for his own benefit and for causing damage to the company.
This can be understood through case law ASIC v Vizard [2005] FCA 1037; (2005) 145 FCR 57[10]. In this case, Court held that Vizard breach section 183 of the Act because he gains the insider information while holding the position of the non-executive director of Telstra. Vizard misuses the information for getting the advantage for CTI, Bringham, or for himself.
Shane also breaches section 180 of the Act by failing to exercise due care and diligence while performing his duties as the director of the company. Therefore, in this case Shane is liable for breach of directors duties stated under Section 180 and 183 of the Act.
In this case, director breach section 180 and 183 of the Act because of which he is liable under section 1317E of the Act, and as per this section if Court is satisfied that a person has contravened the provision of the civil penalty, and then Court makes the declaration of the contravention. Later, ASIC can seeks the pecuniary penalty order or disqualification order under section 206C of the Act. Therefore, Shane can be liable for:
- Pecuniary penalty order under section 1317G up to $200,000.
- Disqualification from the position.
Conclusion
- In this case Shane breach the directors duties stated under Section 180 and 183 of the Act.
- In this case, director breach section 180 and 183 of the Act because of which he is liable for pecuniary penalty and disqualification from the position.
Scenario A
Issue
Whether Frank, Diane, Ron, and Kelly breach any of their general or statutory law duties as directors of the company?
Section 180 of the Corporation Act 2001 imposes duty related to the care and diligence on the directors. As per this section, it is necessary for the directors to perform their functions with due care and diligence while conducting their functions as the director of the company.
Section 181 of the Act defines the provisions related to the good faith. As per this section, directors must fulfill their obligations in good faith, for proper purpose, and in the best interest of the company. This section also impose obligation on directors of the company to avoid the conflict of interest[11].
Liability of Consultant in Uninest Takeover by Urbanlodge
It must be noted that for determining the best interest of the company, Court introduce two-step test in the case Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821[12]. Through this test, Court determines whether directors of the company acted in proper manner or not.
Section 182 of the Act imposes the obligation on directors not to use their position for improper manner for getting the benefit for themselves or for someone else. This section mainly impose obligation on the directors of the company to avoid any conflict of interest with the company.
In ASIC V Adler 2002, in this case Court stated that directors breach their duties stated under section 180, 181, and 182 of the Act. All three directors of the company that were Adler, Williams and Fodera breach their director duties under section 180 of the Act because they fail to take proper care while performing their actions. Adler contravenes section 181 and 182 of the Act, as he fails to act in good faith and in the best interest of the company. Adler also adjusts the loan of $ 10 million from HIHC to PEE which shows that he used his position in improper manner.
In the present case, all four directors of the company that are Frank, Diane, Rio, and Kelly enter into the contract by ignoring the report of the experts. In this case, directors breach section 180, 181, and 182 of the Act in following manner:
- All four director’s contravenes section 180 of the Act, because all fails to take proper care and diligence while performing their actions. Section 180 of the Act states directors must act with due care and diligence while conducting their functions as the director of the company. This can be understood through case law AWA Ltd v Daniels t/as Deloitte, Haskins and Sells, 7 ACSR 759[13]. In this case, Court discusses the issues related to the delegated authority and wrong procedures in context of reporting to the board of the company. This case imposes equivalent obligtaion on both executive and non-executive directors.
- Section 181 is also breached by the directors of the company, because decision taken by directors is not taken in good faith and not works in the best interest of the company. This can be understood through case law Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 225 FLR 1[14], in which Court held that decision taken by directors of the company were not justified the criteria of the good faith because actions taken by director are taken for improper purpose. In other words, decision fails to ensure the benefit of the organization. In this case, Court implied the objective test for determining the intention of the parties. In the objective test, Court determines whether any reasonable person who has same knowledge and experience take any such decision in this case.
- Section 182 is breached because director’s fails to use their position for proper purpose, as after getting the report of the expert, directors decided to enter into the contract for their own benefits.
Therefore, it can be said that all four directors of the company that are Frank, Diane, Rio, and Kelly breach their duties under both general and statutory law.
Conclusion
By entering into the contract with the airbus, directors of the company that are Frank, Diane, Rio, and Kelly breach their duties under both general and statutory law.
Issue
Whether it is possible for the directors of the company to use any statutory defense in these circumstances?
Section 189[15] of the Corporation Act 2001 states that in case directors of the company take decision on the basis of the information or advice which is provided by any professional expert in terms of those matters which directors think that covered under the core competency of the expert or professional. This section further states that directors must depend on the advice and information in good faith, and they are also under obligation to make the individual evaluation information and advice given by the person.
Reliability of the director on information and advice is reliable or not is determined through the fact that is whether general and statutory duties are performed by the director of the company or not (ASIC v Hellicar & Ors [2012] HCA17[16]).
In this case, directors take their decision on the basis of the report send by the expert, and that report stated that directors of the company can enter into the contract. These directors of the company can use the defense stated under section 189 of the Act which states directors of the company take decision on the basis of the information or advice which is provided by any professional expert in terms of those matters which directors think that covered under the core competency of the expert or professional.
Conclusion
Directors of the company use the information provided by the expert and take their decision on that behalf. Therefore, they can use section 189 as a statutory defense.
Website
ASIC, Directors – What are my duties as a director?,
AICD, General duties of directors,
Case laws
Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821.
AWA Ltd v Daniels t/as Deloitte, Haskins and Sells, 7 ACSR 759
Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 225 FLR 1.
ASIC v Hellicar & Ors [2012] HCA17.
ASIC v Vizard [2005] FCA 1037; (2005) 145 FCR 57.
Asic v Adler and 4 Ors [2002] NSWSC 171 (14 March 2002).
Statute
Corporation Act 2001
[1] Corporation Act 2001- Section 180.
[2] Corporation Act 2001- Section 181.
[3] Corporation Act 2001- Section 182.
[4] Corporation Act 2001- Section 9.
[5] Asic v Adler and 4 Ors [2002] NSWSC 171 (14 March 2002).
[6] ASIC, Directors – What are my duties as a director?,
[7] Corporation Act 2001- Section 1317E
[8] Corporation Act 2001- Section 1317G
[9] Corporation Act 2001- Section 206C.
[10] ASIC v Vizard [2005] FCA 1037; (2005) 145 FCR 57.
[11] AICD, General duties of directors,
[12] Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821
[13] AWA Ltd v Daniels t/as Deloitte, Haskins and Sells, 7 ACSR 759.
[14] Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 225 FLR 1
[15] Corporation Act 2001- Section 189.
[16] ASIC v Hellicar & Ors [2012] HCA17
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