...law Section 228(1) of the Companies Act 2014 details the eight fiduciary duties directors of companies are obliged and compelled by law to comply with. The question is why it is necessary through the application of law to limit director’s decision making responsibility. The potential for directors to abuse their positions of power with regards to company’s assets in the daily running of the company seems limitless even when directors are in their own perception acting bona fides with regards to their decisions. Section 228(1) is so important and appropriate to business law as Directors are persons who according to Callanan(2007,p207) ‘have been entrusted with powers for the benefit of others’ but the potential to damage one person or persons to benefit another is so highly possible that the law is compelled to control directors decisions. Section 228(1) (d) addresses a directors duties ‘to not use the company’s property, information or opportunities for his or her own or anyone else’s benefit’. The case of Regal Hastings v Gulliver (1942) is one which has involved much debate throughout the years. The directors of Regal although acting in their opinion bona fides, through holding a position as directors were privy to information that, had they not held their position as directors would not have been able to benefit from the transaction that they undertook. The key point behind this case was that directors are exposed to sensitive and sometimes exclusive information and such information...
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...Introduction The welfare of a company depends on the shoulders of the directors and the directors are also responsible for the interests of the company as well as shareholders. Directors are basically fiduciary agents and they owe duties to the company, directors' are appointed by the company's shareholders to run the company's affairs for the benefits of the shareholders. Moreover, no company can get success without having the good and honest directors, so company success can only be achieved, if the directors of the company fulfil their duties and complete enforcement of the director's duties. Therefore directors play very significant role in any corporate governance system. Director's general duties are based on the certain common law rules and equitable principles. Lord Judge Bowen explains director's duties in these beautiful words that “directors are described sometimes as agents, sometimes as trustees and sometimes as managing partners. But each of this expression is to be used not as exhaustive of their powers and responsibilities, but indicating useful points of view from which they may for the moment and for the particular purpose be considered.” The Chapter 1 of this paper is amid to critically analyze that what are the duties and responsibilities of directors under Companies Act 2006. The duties of directors alone are of no importance if they cannot be fully enforced, the chapter 2 of this piece of work relates to the system of enforcement which provides the different...
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...Executive Summary ________________________________________ ‘Do directors have to be accounting standard gurus?’ ‘How do directors spot the ticking bomb buried deep in a massive board pack? These are some of the questions making top headlines following the Centro case decision made by Justice Middleton of the Federal Court on the 27 June 2011. The issue of contention was whether the directors had sufficiently carried out a review of the financial statements, and if they had, whether the information was consistent with the directors’ knowledge of the company’s operations and whether the accounts contained all material information that should have been reported on and known to the directors. ASIC successfully won the case with the eight defendants (Chief Executive Officer, Chief Financial Officer, Chairman and 5 other non-executive directors) found guilty of failing to identify and disclose significant errors in the 2007 consolidated financial statements of Centro Properties Limited, Centro Property Trust and Centro Retail Trust (collectively referred to as Centro). Financial statements are essential for the accurate assessment of risks faced by any company. The decision in the Centro case clearly emphasises this point. Directors should be well equipped with basic accounting knowledge and be conscious of their duty to properly assess and review financial statements. It was also highlighted that directors should be warned against simply delegating financial reporting...
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...discussing the issues that are confronted by the directors of Hampton Park Pty Ltd (HP). The directors, William, Jack, Susan and Gail had their company liquidated shortly after declaring the dividend to their members. Unbeknown to the directors, the Chief Financial Officer of HP, George has been withholding information regarding the company’s deterioration of their financial position. Although late in realizing, George also failed to inform the board regarding the change in the dividend payment rules before the signed off their financial statement in 2010. The new payment rules that was enforced on 28 June 2010 stated in s254T of the Corporations Act 2001 points out that the company’s asset must exceed the liabilities immediately before the dividend is declared and the excess must be sufficient for the payment of the dividend. The company than went into liquidation after the dividend was paid. These issues will be discussed in further detail throughout the essay by examining the directors’ duty of care and the directors’ duty to not trade whilst insolvent and whether there is any breaches of these duties. These duties are set up to allow directors hold accountability and to minimize risk of wrongful or illegal behavior. Duties of a “Director” The term “director” is clarified under s 9 of the Corporations Act 2001, which states that “definition of a 'director' includes those appointed to the position of a director, an alternate director and those acting in the position even if not...
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...1. Introduction Directors play vital role in corporate governance in which their poor management will lead to a significant change of shareholders value, measured by the company share prices. For example, ABC Learning Centre share price dropped 60% in 2 hours after it announced its profit fell 42% (Couriermail 2008). The purpose of this report is to outline the reasons of the collapses of ABC Learning Centre, Centro Properties Ltd and Hastie Group and the main financial disclosure issues raised. This report also includes amendments done by the Australian regulator to prevent such collapses and a discussion of directors’ duties to ensure the true and fair view of financial statements. 2. Brief background and the cause of financial problem 3.1 ABC Learning Centre In 2008, the ABC wrote off a loss of $437million, an amount which exceeds total profits of $300million in previous years (Schwab 2008). This means that ABC was indeed making losses since it was listed in 2001. The problem arose when new audit company, Ernst &Young, the new appointed audit team, found out that the company had reported payments from the developers as normal revenue hindering the fact that most centres were actually losing money. Moreover, an approximately of $206million indirect subsidy from the Federal Government via Child Care Benefit were reported (Rush & Downie 2006). Another problem is that its intangible assets consisted of various operating licenses worth $3.05billion...
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...Directors perform various duties within a company and these involve the coordination, leading, controlling and planning of a company’s resources so that set objectives and targeted are achieved. According to Abbort (1996), Directors are persons to whom the management of the company is entrusted. In Zimbabwe every company has the statutory obligation to have at least two directors of them one shall be a true ordinary resident of Zimbabwe; this requirement is according to the Companies Act (24:03) section 169(1). Some of the duties of directors are discussed below: To select competent executive officers It is the primary duty of a board of directors to select and appoint executive officers who are qualified to administer the company’s affairs effectively and soundly. It is also the responsibilities of the board of directors to dispense with the services of officers who prove to be unable to meet reasonable standards of executive ability and professionalism. A good example was portrayed by Econet PVT LTD directors who selected a highly educated directorate of executive officers with the likes of DouglasMboweni who is qualified and competent. To effectively supervise the company’s affairs The charter and degree of supervision required of an organization’s board of directors to assure a soundly managed organization involves reasonable business judgement and competent and sufficient time to become informed of the organization’s affairs. Directors cannot avoid responsibility for...
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...Duties of Director: The duties of directors of a company have been elaborately explained by Romer L. J in Re City Equitable Fire Insurance Co[1]. The important duties are quoted from this case and summarized below: 1. Distribution of work: The manner in which the work of a company is to be distributed between the board of directors and the staff is a business matter to be decided on business lines. 2. Good faith: Every director must act honestly and in the interest of the company. 3. Reasonable care: A director “must exercise such degree of skill and diligence as would amount to the reasonable care which an ordinary man might be expected to take in the circumstances on his own behalf.” 4. Degree of skill: A director “need not exhibit in performance of his duties a greater degree of skill than what can be reasonably expected from a person of his knowledge and experience; in other words he is not liable for mere errors of judgment.” 5. To attend meetings: A director “ is not bound to give continuous attention to the affairs of his company; his duties are of an intermittent nature to be performed at periodical board meetings and the meetings of any committee to which he appointed, and though not bound to attend all such meetings, he ought to attent them when reasonably able to do so.” 6. The director’s duty of disclosure: The Companies Act of 1956 maakes it obligatory upon directors to disclose certain facts to the company: (1) If a director is interested...
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...Introduction - Director’s duties Even though the law recognizes corporations as separate and distinct entities from the owners, it nevertheless recognizes that corporations act through people. Such people are referred to as directors and manage the activities of a corporation. In Lennard’s Carrying Co. v. Asiatic Petroleum Co. Ltd, the court observed that directors are the directing mind and will of the company. Accordingly, directors of a company act for and behalf of the company, and as such owe several duties to the company. These duties are at common law and also statutorily provided for. In the U.S., there is no single statute codifying these duties, and as such states are given the latitude to legislate on the issue (Clarke, 2007). Majority of other commonwealth contries however have a codified statute dealing with such issues. From a general perspective and subject to state law, director’s duties at common law apply to all states. It is imperative to note that these duties are owed to the company and not to the owners or shareholders. In Percival v. Wright, the court held that directors are not agents of the shareholders, but rather agents of the company as a whole. Importantly also, these duties also bind any person lawfully authorized by the directors, to act on behalf of their behalf. At common law, the duties of directors fall into two categories: the duty of care and skill in the conduct of the affairs of the company; and fiduciary duties of good faith and loyalty...
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...In the essay given, it identifies fiduciary duties of directors as the main issue. There are a few consequences of breaching fiduciary duties. Under general law, a failure to disclose a conflict of interest rendered the transaction voidable at the option of the company. Aside from rescinding the contract, the company can seek to obtain a range of remedies such as an injunction to stop the breach of duty continuing, a constructive trust over assets acquired arising from the breach of duty, an account of profits to strip away gains made by the breach of the duty or equitable compensation. For contraventions of the statutory duties, both ss182 and 183 are civil penalty provisions under s1317E. Therefore, breach of these provisions may result in a declaration of contravention being made by the court and thereafter ASIC may apply for a pecuniary penalty order (s1317G) and/or a disqualification order (s206C) and/or compensation for the company (s1317H). A serious contravention of ss182 or 183 which is dishonest or reckless may result in a criminal liability under s184 (2). This action may be taken by ASIC and/or the Commonwealth Director of Public Prosecutions. The word ‘fiduciary’ has its roots in the Latin word fiducia, which means trust or confidence. A fiduciary duty is a legal duty to act solely in another party’s interest. Parties owing this duty are called fiduciaries. The individuals to whom they owe a duty to are called principals. Fiduciaries may not profit from their...
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...* Duty of care and dillgence – statute law – s180 * S588G imposes a duty upon directors to prevent their company trading whle it is insolvent . s588G requires directors to be continually monitoring the financial status of their coy (* only apply to directors) * S181 – duties to act in good faith in the interest of coy and for a proper purpose * S 191 – duties to avoid conflicts of interest * S182&S183 – not to make improper use of position or information (* apply to employee) * S9 – define officer of coy- have management responsibility relation to a coy in financial difficulties * Generally the duty will be owed to the members as a collective whole (not a minority) that should be considered by directors: * Generally there will be no duty owed to individual shareholders; The director needs to have been in direct and close contact with the individual member so that the director caused the member to act in a certain way which turned out to be detrimental to them: Here, the facts are similar to Brunninghausen v Glavanics, where a fiduciary arose to the individual. In that case there were only 2 shareholders (both were directors also), and B convinced G to sell their shares and resign as director so that B could act on an offer of sale (unknown to G). An individual fiduciary duty was found because G was the company, aside from B, and G relied on B for information about the company. Our situation is similar in that [reasons] and therefore [director]...
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...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...
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...legal entity to its directors and shareholders? Or will its directors be personally liable for its debts? Law Upon incorporation, a company becomes a separate legal entity from its directors and members (s119). It can sue and be sued, acquire assets and debts, and enter into contracts in its own name. Its existence can lasts a lifetime as well. The Doctrine of Separate Legal Entity also known as “corporate veil” entails that the Directors of a Company have no personal liability while its Shareholders are only liable up to the amount they paid for their shares. In Salomon v Salomon & Co Ltd Case, Mr. Salomon was the majority shareholder and a secured creditor of the company. Upon winding up, the liquidators argued that Mr. Salomon must not be considered as a secured creditor since he was in control of the company itself. But the Court’s decision recognized Mr. Salomon as a secured creditor since the company has a separate legal personality from the directors and shareholder upon its registration and it has nothing to do with Mr. Salomon being a secured creditor. Application Applying s119 corporations act, Easy Groceries Pty Ltd is a separate legal entity from its directors and shareholders, meaning that Easy Groceries Pty Ltd as a company itself is liable for the debts that occurred. Conclusion As an own legal entity, Easy Groceries Pty Ltd is liable for all the debts occurred. 2. Directors A. Tom and Jones : Executive directors Issue Are...
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...pwc.com.au A guide to directors’ duties and responsibilities for non-listed public companies and proprietary companies in Australia Contents 1 Executive summary 1.1 1.2 2 Sources of company law in Australia Summary 1 1 1 2 2 2 3 3 3 4 5 6 6 6 7 7 7 8 8 9 9 9 11 12 Common law duties 2.1 2.2 2.3 2.4 2.5 2.6 2.7 Duty to act bona fide (In good faith) in the interests of the company as a whole Duty not to act for an improper purpose Duties of care and diligence Duty to retain discretion Duty to avoid conflicts of interest Duty not to disclose confidential information Duty not to abuse corporate opportunities 3 Statutory duties 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 Section 180 – Duty of care and diligence and the business judgment rule Section 181 – Duty of good faith Section 182 – Duty not to make improper use of position Section 183 – Duty not to make improper use of information Section 184 – Criminal offences Section 588G – Duty not to trade while insolvent Section 191–195 – Disclosure of material personal interests Section 208–210 – Financial benefits to related parties of public companies Section 285–318 – Financial reporting 3.10 Others 4 5 Company constitution Penalties PwC i Contents 5.1 5.2 6 Criminal penalties Civil penalties 12 12 13 13 13 14 14 14 Duties in practice – Examples of breaches in Australia 6.1 6.2 6.3 6.4 6.5 The Australian Securities and Investments Commission’s (ASIC) Power to Ban directors ASIC v Adler and Ors ASIC...
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...The role of a director of a company carries with it much legal responsibility This is the topic that will be discussed in this essay. It will begin with a definition of what a director is, followed by the relevant legislation. I will go on to discuss the different types of directors in a company followed by the main duties directors owe to a company. I have taken a look then at the powers directors have in a company and ended this topic with the personal and criminal accountability directors may experience if they don’t exercise their powers in good faith and in the interests of the company. Section 2(1) of the Companies Act 1963 defines ‘director’ as “including any person occupying the position of director by whatever name called.”(Keane 1991) The primary function of a director is to manage the company on behalf of the members. The Articles of Association usually provide for the delegation of the members’ management powers to the Board of Directors and many of the functions of the directors are set out in a company’s Articles of Association. (Abbott et al 1993) The relevant legislation that applies to companies and its directors is the Companies Act 1963. It states regulations for management of a company limited by shares not being a private company. (Callanan 2007) There are numerous types of company directors, Shadow Director, Alternative Directors, De Facto Directors, Executive Directors and Non Executive Directors. A shadow director is any person other...
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...Fiduciary Duties of Boards of Directors Presentation at Third Asian Roundtable on Corporate Governance Singapore, 4 April 2001 Professor Bernard S. Black Stanford Law School bblack@stanford.edu 1-650-725-9845 Introduction I want to offer an overview of the principal fiduciary duties of boards of directors. I will speak mostly from a common law perspective. Fiduciary duties of directors were first elaborated by common law judges, operating without any guidance from the formal written law. Indeed, the company laws of the United States, and many other common law jurisdictions, contain no statement at all of the core fiduciary duties of care and loyalty. The fiduciary duties of directors are continuing to evolve, again without formal written law. The classic statement, still found in many American law school textbooks, is that directors owe to shareholders, or perhaps to the corporation, two basic fiduciary duties: the duty of loyalty and the duty of care. I believe that this is too simple a picture. There are at least two additional core duties that directors have today: a duty of disclosure, and a duty that has no precise name, that I will call the duty of extra care when your company is a takeover target. I want to offer, for each of these duties, a brief statement of the duty, why it exists; and how the duty is enforced or, sometimes, not enforced. I will speak about duties of directors, but these duties apply to officers also. 1 Duty Test...
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