Are you a director of an Australian Company? Do you know your duties, rights and responsibilities? As a company director, do you must keep these ideas at your fingertips.
Duties to Exercise Due Care and Diligence
In a business environment the directors and other officers of the firm must exercise their duties with due diligence and care. They must exercise judiciousness in performing their roles to attain the appropriate results and interest of the company (Moulislegal, 2017). The director or an officer might be held legally responsible for failing to exercise ordinary or reasonable care under the situation. For instance, absence of diligence and due care may be demonstrated when the director or the officer in charge fails carry out reasonable evaluation of a company matter, to frequently attend board summits, or sufficiently provide supervision to workers which damages the company (Sheenan & Fenwick, 2008).
The ‘business judgement rule’ safeguard the directors and officers if the decisions made fails to favor the company. Under this rule, the director or the officer might not be held responsible for the company decisions made with reasonable care and in good faith that in short run or long run turn out to harm the interest of the company (Samantha & Wood, 2016). The courts play a critical role in this matter by deferring wrong business decisions, given the fact that the director or the officer did not show gross neglect in their decision-making procedure and review (Moulislegal, 2017).
In the case of Healey v ASIC, the chief financial officer and directors of the Centro group of firms were discovered to have contravened 180(1) of the Corporations Act 2001 (Cth) (“Act”) –by approving consolidated monetary reports which did not disclose very important short-term liabilities (in the sum of $1.75 billion and$1.5 billion). The Court discovered that the insufficiencies in the monetary statements were plain on the face of the pamphlets and the directors had an individual duty to evaluate and approve them. furthermore, one of the directors was penalized, and barred from managing companies for 2 years given his distinct position of authority and knowledge.
Duty to act in good faith and for a proper purpose
Under the duty of directors to act in good faith and for proper purpose, directors and officer’s ought to act with fairness, good faith and honest when dealing with company roles. The duty also requires that the directors and officers consider the interest of the firm when carrying out their roles and should ensure that ending decision is in the due course the firm’s best interest (Moulislegal, 2017). This continuous duty functions in their day to day tasks and operation of the company. In other words, the directors or officers should exercise their powers and discharge their roles for an appropriate purpose and in good faith in the best interest of the firm.
The duty to act for an appropriate purpose obligates the directors and officers not to use their position or status to gain tangible and intangible evidence for themselves or a third part or at some point cause harm to the corporation. Where the verdict might not have been made, but for inappropriate purpose, the verdict might be regarded as unacceptable and the director or an officer shall be in violation of his or her duties or responsibilities (Sheenan & Fenwick, 2008).
Duty to disclose all material and personal interest
In duty to disclose all material and personal interest, the rule says that frankness in business deliberation is significant between shareholders, officers, and directors to allow them evaluate material risks before making an informed decision. Full and just disclosure of material facts is necessary before deciding to seek stockholder or board approval or key business transactions like acquisitions or merger of other firms (Moulislegal, 2017). As part of their responsibility of care and loyalty, directors and officer must similarly disclose possible conflict of interest that might arise between their individual interests as well as those of the company.
According to corporation Act 2001, Under section 181(1), it says that a director or other officer of a company to exercise their authorities and discharge their duties in good faith for the best interest of the corporation and similarly for a proper purpose. In the case of Fodare Pty Ltd v Shearn (2011) one director of the was held responsible to have contravened her duty to act in good faith in the best interest of the company (and similarly held to have contravened her duty to act for a proper purpose).
Duties to ‘not to misuse their position and information’ to gain an advantage or cause damage to the company
Duty not to inappropriately use position or information states that director should not inappropriately use their post or status or information gotten due to their position to cause harm to the corporation or get benefit for themselves or someone else. When evaluating a breach, the courts are likely to look at director’s intention and not what really emerged. Thus, if the benefit was accidental and the director made a verdict or used the information in good faith and for an appropriate aim without considering such benefit or the director made a verdict or used the info believing that it would not cause harm to the firm, then no violation is expected to have happened. markedly, an information must not be taken into consideration as confidential to be caught by this requirement (Moulislegal, 2017).
According to company Act 2001, under section 182, the section states that it restricts officers or the staffs of a company from inappropriately using their power to gain advantage for themselves or for any other persons to the company. In the case of Adler V ASIC, the court held that Adler had breached the section 182 because of the arrangement of $10 million loan from HIHC to PEE which was then to be used to obtain HIH shares on the stock market.
Remedies for breach of directors’ duties
There are various remedies for breach of director’s duties which are as follows. Penalties for a violation of director’s obligations and duties are serious and encompass fines up to $200,000 as well as entitlements for compensations and justification of profits (Moulislegal, 2017). Serious breaches are likely to result in incarceration for up to five years or debarment from running corporations in the future.
Intention is significant when trying to determine the quantum of any remedy, and managers have higher chances of being guilty of unlawful crime where they appear irresponsible or deliberately deceitful in undertaking their responsibilities.
Duties and responsibilities of directors can be a complex part and a failure to obey can cause substantial outcomes for both the corporation and the manager individually. Directors should instantly seek guidance where they are not sure of their duties or obligations or how any disagreement should be handled (Baxt, 2005). Other possible remedies include an injunction, compensation or damages and a criminal fine.
In the case of Healey v ASIC, the chief financial officer and directors of the Centro group of firms were discovered to have contravened 180(1) of the Corporations Act 2001 (Cth) (“Act”) –by approving consolidated monetary reports which did not disclose very important short-term liabilities the remedy was that one of the directors was penalized, and barred from managing companies for 2 years given his distinct position of authority and knowledge.