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DUTY (There are three person effected by the breach
of the drectors!
When the directors breach their duty
entrusted to them, it effects the
The members can seekremedies
provided under the Companies Act.
s. 181 members who are oppreseed can
seek relief from the court for oppression
and unfair conduct.
s. 2181!"! application for compulsory
windin# up.
"f the directors misuse the inside
information of the company the are
breach of their duty as such the
members or other person effected can
seek remedy u$s. 1%2A and 1%2&
The company also has some remedy for the breach of duty
by the directors.
1. O$erpad
Tavistock Holdings Pty Ltd. v Saulsman
A mana#er took a mana#ament fees w$out authority 'eld(
A director who breach their fudiciary duty owed to the
company was ordered to account for an overpayment made
by the Co. to him and another company controlled by him.
2. O%tsder who knowin#ly participate in a officer)s breach
can be ordered to pay back the profit obtained.
Green v Bestobell
Whereby the &estobell *ana#er incorporated a company
to obtain a contract ri#htfully belon#s to &estobell.
&estobell can recover the profit obtained by the company.
%. Da&a'es or Co&pensaton.
+or &reach of +udiciary ,uty the company can seek a
remedy of compensation in -.uity.
Markwell Bros Pty Ltd. v CPN
"t was held that directors who were in &/+, were liable to
compensate the company.
Torts of deceit the company can claim for dama#es
+or 0e#li#ence &/,! can claim dama#es.
1. s( )*+ impose a varies statutory duties to the officer of
the company if in breach officer are #uilty of a criminal
offence as well as must compensate if the company suffers
2. Acco%nts of "roft
"f the officers makes an undisclosed profit due to the
conflict of interest, the court will order the profit toe be
return back to the company.
egal!Hasting"#s Case
The company also has the option to rescind the contract.
&ut this ri#ht is depend to circumstances whether the loss
is possible to be restored.&ona fide third party purchaser!
ussell $insela v $insella
Where 2 directors of the company had e3cersied their
powers for an improper purpose. The li.uidator succeeded
to sou#ht a declaration that the lease was voidable at the
company)s option.
,- Ret%rn of "rofts
When director obtain property as a conse.uences of a
breach of duty the company can seek a declaration to
make the director to hold the property as trustee untill it is
returned to the company.
%#Brien v &alker
Where one of the director misapplied the company)s fund
to purchase a house on his name. After he died and when
the company went on li.uidation, li.uidator seek that the
house was bein# held as a constructive or resultin# trust
for the company. The Court upheld.
1. The nterest of the credtors
When the company is in financial difficulties the
directors must act in the interest of the creditors as
well as its shareholders.
'$ever if the company #oes on insolvency or there is
a doubt as to its solvent the interest of the creditors
will overide the interest of the shareholders.
Nic'olson v Permakra(t.
ing vSutton
'eld the directors are in breach of their duty and
disre#arded the interest of the creditors when they
caused their compoany tolend money at less than
market value even when the company is solvent.
Gorve v )lavel
The director misuse the confidential information to
protect him and his other companies from the
possible li.uidation as such it effect the interest of the
creditors of the company. 'eld( 'e acted improperly.
Castrisios v Mc Manus
A director who acted to protect himself and his
associates upon becomin# aware that li.udation was
imminennt. This information was misuse when the
director diverted the companys fund to pay off debts
incurred by him and his associates 'eld 'e breached
s. 1%22!..
+- "%b.c E/a&anaton (s- +01!
4pon receivin# a report fro li.uidators , the court may
direct any person deem to #ive information as to the
affairs of the company .That notes of ecamination
can be used in a le#al proceedin#.
*- Inso.$ent tradn'
s. %5%%! it is an offence when an officer of the
company knew that the company cannot pay the debt
but contracted for the debt.
s. %512! upon conviction under s. %5%%! the court
on an application by the creditors etc will make an
order for that officer to pay the whole of part of the
s.%521! the court has power to order a person who
was #uilty of C&T or misfeasance to restore back the
property misappropriated.&ut only applicable durin#
windin# up.
2- Fra%d%.ent Cond%ct
s. %512! it is an offence to defraud the creditors of
the company. 'ere no need to show that the actual
fraud had occurs.6o lon# as there is an intention to
deprieve the creditors is enou#h. Coleman v T'e
s. %51%! the court can make a conse.uential order.
1. By 4enera. Meetn' of Me&bers
,irectors who have breached their duties to the
company may be e3cused from liability if the #eneral
meetin# of the members rtifies their action.
)urs v Tomkies
They can avoid liability by disclosin# their interest and
#ain the approval of the 7*.
The 7* also can ratify the actions of the director who
e3ercise their powers for improper purposes.
Bam(or v Bam(ord
,irector of &amfords alloted shares to &ur#ers for the
purpose of preventin# the take over.This was
improper use of the power becos the purpose of
issuin# shares is to raise the capital. &ut this was
ratify by the #eneral meetin# of &armfords.
&int'ro+ ,nvestment v &inns
7* can even ratify an improper e3ercise of power
whish the directors not yet carried out.
Pavilides v -ensen
The 7* also can ratify breaches of directors duty of
care, both prospectively or retsospectively.
.aniels v .aniels
&ut the directors breach enables them to #ain
benefit then the ratification is invalid.
+- By
At Comon 8aw articles can e3cluded directors liability
for breach e3cept fo wilful ne#lect or default.
&ut s. 115 1! CA states that if the articles provide
e3emption any officer or audiotor of the company
a#ains any liability due to ne#li#ence, breach of duty
orbreach of trust in raltions to the company is 9/",.
Company ay indemnify an officer or aduditor a#ainst
liability incurred succesfully defendin# in civil or
criminal case. 6. 1152!
*- By The co%rts
s. %21%! "f they acted honestly and fairly, they can
be relieved from liability of breach of trust, duty
ne#li#ence or default by the court
Permacra(t v Nic'olson
"f the director who breach had obtained benefit than
the court will not #rant a relief..
/dvance Bank /ustralia v )/, ,nsurance
,irectors spent company fund for election campai#n
of company directors.Althou#h they acted honestly
and bonafide, but it was not don:t with reference to all
circumstance of the case.
At Co&&on 3a5
6ometime company provides in their articles that
directors must disclose their interest in a
contracts and refrain them from votin# on the
matter.( TA ;2h! < TA 81.
&ut this suspension is only in the &oard
meetin# . "f he is a shareholder also, he can vote
in 7* even if it involved his interest.
At common law a director can avoid breach of
fiduciary duty by disclosin# his interest to the
#eneral meetin# for ratification.
)urs v Tomkies, made full discloser 'eld( 0o
egal!Hastings" v Gulliver
Under the Act
s. 1%11! re.uires the director if has conflict of
interest to make full disclosure to &oard of
"f not material interest e# only a member to the
other Co.! then no need to declare( s. 1%12!
,eclaration of interest can be made by #ivin# a
#eneral notice to the board.
s. 1%2 re.uires the said director to #ive certain
information to the company i.e. his interest in
shares, debentures etc.
s. 1%1 re.uires the company to maintain a
re#ister of each directors interest in other