As per facts of the problem, Mr Bond is the company’s chief executive officer of Vegas Ltd. The problem follows with IRAC format.
Whether Mr Bond has committed breach of his directors duties or not?
The Corporations Act 2001 specifies a general rule that any company either of public or private entity is to be run, regulated and controlled by its directors of a company. Thus all directors of a company hold certain elementary obligations and responsibilities to handle the business of a company. The following four common duties or liabilities of directors are
- Section 180: Duty to Care and diligence – a director is liable to perform his duties with the mark of care and diligence. Such rule imposes a charge over director that such director perform his role alike any common person might be ordinarily act in any circumstances.
- Section 181: Duty to maintain Good faith –a director is charge by a duty to act in good faith in the paramount interests of the company. The section mutually deals with a duty of faithfulness and belief; it is also termed as a “fiduciary duty’in law.
- Section 182: Duty to preclude any inappropriate use of position – director always liable to inhibit any motion which may influence his position or provide any gain an advantage for himself or for others for the purpose of impairment in the interest of the company.
- Section 183: Duty to curb any inadequate use of information – director charged to curb any improper use of the information acquire in the course of director duties might provide gain of an advantage for himself or for others in order to harm or impaired company’s interest.
Several court findings have highlighted duty of director in relation to the approval of financial statements (Centro case) the court held that the directors are primarily responsible to take accounting reporting maintenance on their own; they cannot even give his responsibilities to any other person. In the context of the directors of Centro Properties Group miscarried to take all reasonable steps to safeguard the Corporations Act 2001. Moreover approvals by board also cover under ambit of breach of duty (James Hardie case). There can also be a breach of the fiduciary duty by making liable to company in order to enter into unsafe transactions confers by irregularities like absence of any prospectus of a company or where a director fails to update matters of certain highlights to the board of matters. The rule of “business judgment rule” (ones finest acquaintance) by Baxt has evidenced to be a somewhat deceptive protective shell for directors.
ASIC v Adler and Others is an exceptional case which supports entirely to the response of the problem. In this case the directors have committed a breach of all above said basic duties of an act. The court held that all directors knowingly contravene the provisions sets in section 180-183 of an act. The principle of care and diligence supported in this case and court made director liable to breach its standard code of duty.
The breach of the directors duty takes place where director fail individually (would not able to justify) or unable to render proper concern in the company’s paramount interest. In the present problem, Mr Bond has committed a breach of fiduciary duty as he was obliged personally to render true accounting reports and he also failed to seek any existing irregularities in the business of the company. Hence, the provisions of the corporation act need to sternly obey in order to avert any breach of duty.
As per facts of the problem, Mr Bond has liable to civil penalty addressed in Part 9.4B of the Corporations Act where Mr bond was obliged to exercise his basic duty to care and due diligence. Here Mr Bond subjected to a liability on the basis of failing to maintain an appropriate or genuine business minutes.
As per the problem, Dr No, Mr White and Mr Big are three non?executive directors of Vegas Ltd. The present problem follows the IRAC format.
Whether Dr No, Mr Big and Mr White have committed breach of their directors duties or not?
Generally, every director of a company either holds position of executive director or non-executive director need to observe basic lawful necessities specified under section 180 to 183 of the Corporations Act 2001. It is an essential highlight that there is no scope for any dormant director in any company. No company shall permit such kind of person who remains in a constitution of a company without participating in any dynamic part during the course of business of a company. According to above stated general application of the director’s role, the court of law have underlined that every director always individually personally liable for any infringement of directors’ basic duties specified in the Corporation Act. Every non-executive director must estimate to acquire the equivalent grade of all minute information or to hold all knowledge same as every executive directors does. Thus, the universal rule is that fundamental responsibilities for both executive and non-executive directors are alike.
Application/Analysis: As Justice Middleton observed in the Centro case “All directors of a company need to oblige to take every possible or judicious measure to hold position to examine the company’s administration. A director must primarily follow a duty to spot awareness with entire working process of the company’s business where the corporation legislation is involved. Every individual director of a company endures beneath an unending responsibility to maintain up-to-date about whole happenings of the corporation. A directorial staff must also monitor generally to every procedure of a business matters and to implement accurate policies. In order to check every task of directorial staff, every director must personally maintain knowledge with the entire procedure of the corporation. Therefore it is clearly mentioned by Justice Middleton that fundamental standard of care and diligence is appropriate to both directors of either executive or non-executive.”
The United Kingdom’s Higgs Analysisdiscussed about position of non-executive directors of a company treated as a “guardians of the corporate supremacy”. A country like Australia considered a worthy exercise to appoint majority of non-executive directors in any company (especially in any registered private company) as they hold an independent authority .A non-executive directors sets an illustration of a good governance of any cooperate.
The main distinction between Executive directors and non-executive directors are that executive directors are the active employee of a company s and they hold expertise knowledge and abilities to manage company’s regular process whereas non-executive directors are treated as dormant or sleeping partner who represent company behind the curtain. They need not to hold any specific knowledge and expertise abilities to handle day to day operation of a company. On the other side, the executive directors play a safeguarding role to manage and monitor every day of business affairs. While, the character of non-executive directors warrant that the company board satisfies all the targets of the company primary purposes. In this case, the legislation never specifies any particular rule especially for non-executive directors of any company. Hence in the case of Anderson, the court of law established settled standards of care and diligence as a common principle in scope of every non-executive director responsibilities.
Moreover, in rich case, the Court of law held that non-executive directors cannot escape their liability by asserting that their responsibilities have minor standards parallel to executive director’s liabilities. Thus, the rule of care and diligence of director duties is identical for both executive and non-executive directors. Even in a case of , Adler was also a non-executive director and he committed a breach of his duties. Executive and Non-executive directors confers the same duties for the purpose of paramount interest in the company.
Dr No, Mr Big and Mr White have committed breach of their directors duty of care and diligence of section 180 (1) of the corporation act. As per facts of the problem, all the three non-executive directors failed to go through the presented draft of financial report. This non reading of draft constitutes a breach by all three non-executive directors. Moreover directors are also liable to negligence on their part of responsibilities. The directors were liable to act in good faith and they should not recklessly breach the standards of duty to care and diligence.
Baxt , Robert, Duties and Responsibilities of Directors and Officers (Australian Institute of Company Directors Publishers, 2009)
Dyson, J. and Gibbs H, Halsbury's Laws of Australia (Halsbury's Laws of Australia, 2000)
Higgs, Derek Review of the Role and effectiveness of Non-Executive Directors, Department of Trade and Industry (London, 2003) p 11
Australian Securities and Investment Commission v Healy (2011) FCS 717
ASIC v McDonald & Ors (2009) NSWSC 287
ASIC v Adler & Ors (2002) NSWSC 171
Walker v Wimborne (1976) 137 CLR 1
Daniels v Anderson (1995) 37 NSWLR 438
ASIC v Rich (2003) NSWSC 85
ASIC v Vines (2003) 49 ACSR 322
Corporations Act 2001 (Cth)