The conducts of a director to be acting in due care and diligence, good faith, not abusing power, avoiding interest conflicts, acting for company’s best interest and maintain confidentiality of company’s information can be described as ‘fiduciary’ or general duties of the directors. It can be seen in sections 180, 181, 182 and 183 the ‘fiduciary’ duties of the directors have been mentioned. The directors are further refrained to trade during insolvency under the section 588G of the Corporations Act 2001 (Cth).
Section 180 of the act discusses duties of a director in relation with due care and diligence as can be expected from a reasonable person. Section 181 requires a director to be acting in ‘good faith’ for the company’s best interest. Section 182 of the Act creates restrictions for a director from misusing his position in company for any personal gain. Section 183 of the Coporations Act restricts a director to misuse company’s confidential information for any personal gain.
The fiduciary or general duties are imposed on directors through the mutual trust that can be seen to be existing among the contracting parties, binds them in a relationship. The directors are obligated to foresee probable harm by the way of execution of their statutory duties while adhering to reasonable care of a certain standard. A director is refrained from insolvent trading under provisions of the section 588G of the Corporations Act, breach of which would amount to a penalty of almost $200,000 as has been mentioned in the Part 5 of the Corporations Act (Hill & Conaglen, 2017). The director can be found to be liable for the breach of statutory duty resulting in an injury or loss to the company and pay compensation. However a director might not need to pay any compensation for the breach of a fiduciary duty.
The Corporations Act lays down the provisions for restraining directors from trading when the company is in debt or insolvent (Marsh & Roberts, 2017). When the company accumulates debts or becomes insolvent by such debt the directors can be held liable for the loss that has been incurred (Hedges et al., 2016). To demand compensation it has to be proved that the director had sufficient reasons to be foreseeing the probabilities of the company’s insolvency and refrain from trading.
However section 588GA of the Corporations Act 2001 provides the defense against a director’s breach of duties. This section can be seen to be providing a ‘safe harbor’ to the directors when they have been blamed for certain conduct (Hill & Conaglen, 2017). The liabilities of the directors that arise because of the accusations of trade during insolvency under the section 588G (2) are safeguarded by the section 588GA (1) of the Corporations Act 2001 (Cth). However this section only provides the directors with defense only if it is proved that for prevention of the insolvent trading of the company they had taken proactive measures. The directors need to prove that they had suspicions about the insolvency of the company and in regard to that suspicion had taken certain steps to stop the company from transacting further that would help in boosting the insolvency. The directors further need to establish that they had maintained proper financial records that could prove the correct conduct of the company.
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