Breaches Of Director Duties By Gonzo In UR Saved And Penalties

Gonzo is a recently appointed director of U R Saved Pty Ltd‘, a corporation formed for the purposes of assisting businesses which have IT problems. He is one of 10 directors of that corporation. Upon his appointment as a director, Gonzo became concerned about the future financial profitability of the company. He decided that he should explore new opportunities for the company, in order to ensure its financial future. Gonzo approached several businesses which his company had already been dealing with in offering their IT services over the past few years.

One of the companies Gonzo approached was Travel Services R Us Pty Ltd‘. This was a very profitable company which offered internet travel sales. U R Saved had previously provided IT services to Travel Services R Us. It appeared that Travel Services R Us was looking for new investors in order to expand the range of products it had been offering. After some consideration, Gonzo decided that this was a very risky and speculative venture and not suitable for U R Saved. He convened a meeting of all directors where made his concerns known to the Board.  An independent review of the investment was also made by an accounting practice who confirmed their advice in a separate letter to the Bard and Gonzo.

But he did believe that this was an opportunity that he would like to take up, so he would invested his own money in the project. Gonzo advised the Board in writing of his intention but he did not receive any reply.

Gonzo invested $100,000 and within six months of his investment he has made a profit of $1.5 million for himself.

Advise Gonzo of any duties that he may have breached as a director of U R Saved and of any civil or criminal penalties that may result.

Director Duties and Breaches

Does the duty have been breached by Mr Gonzo as the director of UR Saved? Whether he should be penalized for this breach?

This problem had the basic rules that are under section 181 of the Corporation Act that the director or the officer should work in the best interest of the company or in good faith. In WHITLAM v ASIC [2002] NSWSC 591 case, the Court had found Mr Whitlam in the contravention of the section 181 as he is the Chairman of the company and he has not done his duties in good faith. Section 182 states that the director should not use his position improperly for their personal benefit or the benefit of someone else determinant to the company. Section 183 states that the person cannot take an advantage of the information they gain in the course of their director duties to gain any advantage for himself or for somebody else. . In ASIC v Adler (2002) 41 ACSR 72; [2002] NSWC 171 case, the court had found the Adler in the breach of the section 180, 181,182 & 183 as he had misuse the information he has gained in the course of his director duties for the person gain. Section 184 states that if any of the duties breached as not worked in good faith or improper use of information and the use of position for the personal gain or for the gain of the others then the criminal liability will arise. In case, R v Rivkin [2002] NSWSC 1182: 198 ALR 200; 45 ACSR 366, Mr Rivkin had misuse the information, his position, not acted in good faith and the court found to be in the guilty under section 184 of the Corporations Act

The rules that are breached in this case, as firstly Mr gonzo did not worked in good faith under section 181 of the Corporation Act. He has the information that Travel Services R Us Pty Ltd is searching for the investors and if UR Saved will invest then will earn good profits. He mislead his company by saying that the venture is very risky and speculative venture and not suitable for U R Saved but he only invested his own money. He invested $100,000 in the Travel Services R Us Pty Ltd and earned the profit of $ 1.5 million within the six months of the investment similarly, it was happened in the case of (ASIC v Adler). It had been proved that he had breached the section 183 by the use of information he had gained due to his position as a director for the personal benefit. He also breached the section 182 by improper use of his position for the personal benefit. Thus, it can be said that Mr gonzo had done the criminal offence under section 184 of the Corporations Act, as he had not worked in good faith, use the information and the improper use of his position as similar in the case (R v Rivkin). These breaches of the duties had mentioned in the other three cases where these duties had been breached. Thus, the duties had been breached by Mr Gonzo and he is liable for the penalties. Therefore, it is advisable for Mr Gonzo that he should understand his director duties that if the breach of his duties that can effect to the legal implications. 

Conclusion

It can be analysed from the case that the director duties of the Corporations Act had been breached by the Mr Gonzo and he is liable for being penalized. Mr Gonzo is liable for the criminal penalties for the breach of the sections 181,182,183 & 184 of the Corporations Act. In the Conclusion Mr Gonzo has been advised to follow his director duties that are given under the Corporations Act, 2001.