Professional Documents
Culture Documents
Directors Duties
General law / statutory duties of:
Good faith and loyalty
Care, skill and diligence
Directors duties
Why does the law impose them?
recognition that directors interests may diverge from those of
shareholders (eg, excessive salary packages and perks)
Shareholders are vulnerable to:
(a) fraud eg, director using cos assets, opportunities or info to
advance their personal interests
(b) mismanagement eg, director risking loss or devaluation of
cos assets through incompetence and poor judgement
Mainly to ensure loyalty of directors to co
Director is in a fiduciary relationship with co (ie, not at arms length)
A fine balancing act directors must be made accountable to cos
interests while they must also have sufficient discretion to take
decisions that carries some risks
Disclosure requirements:
S 191 - a director of a company who has a material
personal interest in a mater that relates to the
affairs of the company must give the directors
notice of the interest.
If disclose then may vote on things related to the
interest and transactions can proceed
Financial benefits Ch 2E
What is insolvent?
S 95A : a person is solvent if they are able to pay
their debts as and when they become payable;
Cash flow test (able to pay debts as and when they
fall due?);
Presumptions of insolvency: ss 588 E
Eg, if failed to keep adequate records under s 286
ASIC v Plymin [2003]
Consequences of breach
of duty