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Law Notes Business Associations I Notes

Directors’ Duty Of Care Notes

Updated Directors’ Duty Of Care Notes

Business Associations I Notes

Business Associations I

Approximately 213 pages

This is regarded as one of the most difficult core subjects for Law. These notes are comprehensive and easy to understand. They also include comments from the lecturer about the core parts of the course. These notes will give you the time to understand the concepts behind Business Associations because they cut down the time that it takes for you to complete your readings....

The following is a more accessible plain text extract of the PDF sample above, taken from our Business Associations I Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Class 10: Directors’ duty of care

  • Understand how the director’s duty of care fits into the broader scheme of director’s duties.

  • Know the different sources of the director’s duty of care and the main consequences of those differences.

  • Know in outline the main cases that inform the interpretation of s180(1).

  • 180(1) is duty of care and diligence.

  • 181 is the duty to act in good faith and for a proper purpose. Don’t forget general law contract, company law, tort and equity (fiduciary power and doctrine of powers).

  • Sections 182 and 183 are duty to avoid conflicts and secret profits.

Corporations Act s 180, 189-190, 198D.

CORPORATIONS ACT 2001 - SECT 180 The statutory duty of care

Care and diligence--civil obligation only

Care and diligence--directors and other officers

Duty of care and diligence.

(1) A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:

(a) were a director or officer of a corporation in the corporation's circumstances; and

(b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.

Note: This subsection is a civil penalty provision (see section1317E).

Business judgment rule

(2) A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection(1), and their equivalent duties at common law and in equity, in respect of the judgment if they:

(a) make the judgment in good faith for a proper purpose; and

(b) do not have a material personal interest in the subject matter of the judgment; and

(c) inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and

(d) rationally believe that the judgment is in the best interests of the corporation.

The director's or officer's belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold.

Note: This subsection only operates in relation to duties under this section and their equivalent duties at common law or in equity (including the duty of care that arises under the common law principles governing liability for negligence)--it does not operate in relation to duties under any other provision of this Act or under any other laws.

(3) In this section:

"business judgment" means any decision to take or not take action in respect of a matter relevant to the business operations of the corporation.

  • Makes it clear that the standard of care and diligence is determined both by reference to the company’s circumstances and the director or officer’s position and responsibilities within the company.

  • The scope of the statutory duty and its relation to the general law are examined in ASIC v Adler and ASIC v Rich.

  • The statutory duty of care remains a civil penalty provision.

CORPORATIONS ACT 2001 - SECT 189

Reliance on information or advice provided by others

If:

(a) a director relies on information, or professional or expert advice, given or prepared by:

(i) an employee of the corporation whom the director believes on reasonable grounds to be reliable and competent in relation to the matters concerned; or

(ii) a professional adviser or expert in relation to matters that the director believes on reasonable grounds to be within the person's professional or expert competence; or

(iii) another director or officer in relation to matters within the director's or officer's authority; or

(iv) a committee of directors on which the director did not serve in relation to matters within the committee's authority; and

(b) the reliance was made:

(i) in good faith; and

(ii) after making an independent assessment of the information or advice, having regard to the director's knowledge of the corporation and the complexity of the structure and operations of the corporation; and

(c) the reasonableness of the director's reliance on the information or advice arises in proceedings brought to determine whether a director has performed a duty under this Part or an equivalent general law duty;

the director's reliance on the information or advice is taken to be reasonable unless the contrary is proved.

CORPORATIONS ACT 2001 - SECT 190

Responsibility for actions of delegate

(1) If the directors delegate a power under section198D, a director is responsible for the exercise of the power by the delegate as if the power had been exercised by the directors themselves.

(2) A director is not responsible under subsection(1) if:

(a) the director believed on reasonable grounds at all times that the delegate would exercise the power in conformity with the duties imposed on directors of the company by this Act and the company's constitution (if any); and

(b) the director believed:

(i) on reasonable grounds; and

(ii) in good faith; and

(iii) after making proper inquiry if the circumstances indicated the need for inquiry;

that the delegate was reliable and competent in relation to the power delegated.

CORPORATIONS ACT 2001 - SECT 198D

Delegation

(1) Unless the company's constitution provides otherwise, the directors of a company may delegate any of their powers to:

(a) a committee of directors; or

(b) a director; or

(c) an employee of the company; or

(d) any other person.

Note: The delegation must be recorded in the company's minute book (see section251A).

(2) The delegate must exercise the powers delegated in accordance with any directions of the directors.

(3) The exercise of the power by the delegate is as effective as if the directors had exercised it.

What is a fiduciary?

  • Facts based vs status based fiduciaries (Hospital Products Ltd v US Surgical Corp (1984)). Key case.

  • The Fiduciary obligations (Breen v Williams (1996))

    • Proscriptive not prescriptive.

      • Conflicts rule. You must not put yourself in a position where your duty to another conflicts...

Buy the full version of these notes or essay plans and more in our Business Associations I Notes.