STATUTORY AND COMMON LAW DIRECTORS DUTIES - A SUMMARY

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               STATUTORY AND COMMON LAW DIRECTORS' DUTIES - A SUMMARY

Company                                                        "A director or other officer of a corporation must
A Company is an association of a number of                     exercise their powers and discharge their duties:
people with a common object. It is owned by                    (a)    in good faith in the best interests of the
Shareholders and managed by Directors. Once                           corporation ; and
created it is an entity in its own right and has a             (b)    for a proper purpose."
legal personality to do what a natural person can
do. Therefore, a Company can sue and be sued                   Section 182(1) - Use of Position
in its own right.                                              "A director, secretary, or other officer or employee
                                                               of a corporation must not improperly use their
Director                                                       position to:-
A Director is a person employed as an officer of               (a) gain an advantage for themselves or
a company and has a duty to perform the duties                       someone else; or
of management of the business of the company.                  (b) cause a detriment to the corporation."

Director's Duties                                              Section 183(1) - Use of Information
This summary deals with several main directors'                "A person who obtains information because they
duties found at Common Law and in the                          are, or have been, a director or other officer or
Corporations Law. Directors’ duties derive from                employee of a corporation must not improperly use
three potential sources: -                                     the information to:-
• Those imposed by Statute, primarily the                      (a) gain an advantage for themselves or
    Corporations Law;                                                someone else; or
• Those developed by the Courts, particularly                  (b) cause detriment to the corporation."
    those duties arising from a director's fiduciary
    position; and                                              Section 191(1) – Disclosure of Interest
• Those that may be expanded upon or shaped                    “A Director who has a material personal interest in
    by the particular circumstances of a                       a matter that relates to the affairs of the company
    company, primarily by a Company's                          must give notice of the interest”
    Constitution or Replaceable Rules and
    other contracts such as Shareholders'                      There are various exceptions to this rule.
    Agreements.
                                                               Common Law – Fiduciary Duties
The Constitution or Replaceable Rules that apply               Duty to Act in Good Faith
to the Company have effect of a Contract                       The duty of good faith is owed by each director and
between the Company and each member,                           is owed to the company itself, as a whole.
between the Company and each director and                      Directors are required to act in what they honestly
company secretary; and between a member and                    believe to be the interests of the company. In
each other member, under which each person                     considering what is ‘in the interests of the
will observe and perform the Constitution and                  company’, a director must have regard to the
Rules insofar as they apply to that person.                    interests of the shareholders of the company and
                                                               the interests of the company as a commercial
Statutory Duties                                               entity. The courts have also considered it proper to
[Please note: these statutory duties can extend                take into consideration the interests of the
to beyond those with the official title of 'Director'.]        company’s creditors.

Section 180(1) - Care and Diligence                            Duty to Avoid a Conflict of Interest
"A director or other officer of a corporation must             A director has a duty to avoid conflicting his or her
exercise their powers and discharge their duties               own interests with the interests of the Company. A
with the degree of care and diligence that a                   director is liable to account to the Company for any
reasonable person would exercise if they:                      profit derived or to indemnify the Company from
(a)    were a director or officer of a corporation             any loss arising from the director’s action.
       in the corporation's circumstances; and                 Additionally, the Company can choose to void any
(b)    occupied the office held by, and had the                contract that the director entered into as a result of
       same       responsibilities    within     the           the conflict.
       corporation as, the director or officer."
                                                               Duty to Exercise Power for a Proper Purpose
Section 181(1) – Duty to Act in Good Faith
A director must exercise his or her powers             (a) remit the group tax or prescribed payments;
conferred on them under the Company’s                  (b) enter into and comply with a payment
Constitution or the Act for a proper purpose.              agreement in relation to the company's liability
Powers must not be exercised for an ulterior               with the ATO (upon default of which, the
purpose or for manipulating voting power.                  current directors are personally liable for the
                                                           Company's obligations under the agreement);
Duty to Retain Discretion                              (c) appoint an administrator to the Company under
Generally, a director cannot contract as to how            Part 5.3A of the Corporations Law; or
they will vote at a future board meeting. A            (d) begin to be wound up under the Corporations
director can however, having entered into a                Law.
contract on behalf of the Company in the bona
fide exercise of his or her duties, agree to take      Directors of the Company will become personally
certain action at a board meeting that is              liable even if they were not appointed at the time
necessary to carry out the contract.                   the liability was incurred.

Insolvent Trading                                      Defrauding Creditors
Directors are now under a positive duty to ensure      Directors' criminal liability for corporate actions
that the Company does not incur a debt while           leading to the defrauding of creditors can be
insolvent.                                             broken down into two parts:-
                                                       • Criminal liability under State Crimes Act; and
It will be the liquidator, rather than individual      • Criminal liability under the Corporations Law.
creditors, who will have the primary right to sue
directors for insolvent trading with money             Criminal liability under Crimes Act 1958 (Vic):-
recovered by the liquidator being available for all    • s81 - obtaining property by deception
unsecured creditors on a pro rata basis.               • s82 - obtaining financial advantage by
Directors can also be criminally liable under the         deception
insolvent trading provisions of the Corporations       • s83 - engaging in false accounting
Law. Section 588G(3) of the Law provides that a        • s84 – Where an offence committed by a
person commits an offence if:                             Company under section 81, 82 or 83 is proved
(a) the person is a director of the Company when          to have been committed with the consent or
    it incurs a debt; and                                 connivance of any Company director, manager,
(b) the Company is insolvent at that time, or             secretary or similar officer, or any person
    becomes insolvent by incurring that debt, or          purporting to act in any such capacity, he as
    incurring at the time debts including that debt;      well as the Company shall be guilty of that
    and                                                   offence and punished accordingly.
(c) the person suspected at the time when the          • s85 - directors intend to deceive creditors by
    Company incurred the debt that the                    false or misleading statements and/or
    Company was insolvent or would become                 publication
    insolvent as a result of incurring that debt or
                                                       • Penalties may include imprisonment
    other debts (as paragraph (1)(b)); and
(d) the person's failure to prevent the Company
                                                       Occupational Health and Safety
    incurring the debt was dishonest.
                                                       Crimes (Workplace Deaths & Serious Injuries) Bill
                                                       2001 creates new offences and penalties for
Recovery action by the Australian Tax Office
                                                       Criminal Manslaughter.
(ATO)
The ATO has made Director Penalty Notices
                                                       Corporate Manslaughter can result in substantial
(“DPN”), issued pursuant to section 222AOE of
                                                       fines.   Directors and senior officers can be
the Income Tax Assessment Act 1936, part of
                                                       imprisoned and also receive a fine.
their enforcement activities. Directors of a
Company which fails to pay its tax as it becomes
                                                       A further offence of negligently causing serious
due and payable are liable to pay to the
                                                       injury is prescribed in the Bill. A Corporation can
Commissioner of Taxation a penalty equivalent
                                                       be fined and directors and senior officers may be
to the unremitted amounts.
                                                       imprisoned and fined $120,000.
Prior to recovery of that penalty from the
                                                       Trade Practices Act 1974 (Cth) ('TPA')
directors, the Commissioner of Taxation must
                                                       The TPA provides for directors to be criminally
issue a written notice requiring the directors of
                                                       liable for the actions of their corporations by virtue
the Company to cause the company to do one of
                                                       of Section 75B which acts as a 'secondary liability
the following things within fourteen (14) days,
                                                       provision'. Essentially this Section provides that a
namely:-
                                                       person, which would include a director, commits an
                                                       offence under the TPA if they are in any way
directly or indirectly knowingly concerned in, or
party to, the commission of an offence against
the statute.

There are two requirements for a person to be
'knowingly concerned' in a contravention. First,
they must have the requisite knowledge, and
second, they must be concerned in the
contravention.

Environmental Protection Act 1970 (Vic)
(EPA)
Under Section 66B of the EPA, a director is liable
if their Corporation contravenes, whether by act
or omission, any provision of the EPA.

Thus, as soon as the Corporation breaches the
EPA, the directors are also criminally liable. It is
possible, under the legislation, for the director to
be prosecuted but not the Corporation. However,
the general practice to date has been to charge
the Corporation and the director with the
proceedings heard together.

Given that liability for directors under the EPA is
strict, the key to the Victorian legislation is in the
defences available to a director for contravention
of the EPA. These are contained in Section
66B(1A), namely:-

(a) the Corporation's contravention               occurred
    without the director's knowledge;

(b) the director was not in a position to influence
    the Corporation's conduct in relation to the
    contravention; or

(c) the director, being in such a position, used all
    due diligence to prevent the contravention.

Please call Mike Poynter or Shane Frost with
any queries or request for further detail.

                         DISCLAIMER
This information sheet is a guide only and legal advice
should be sought in individual circumstances. While every
effort has been made to ensure the accuracy and
appropriateness of the above information, neither MCP
Group nor any of its officers, employees or agents accept
any responsibility or liability for any loss occasioned by a
person relying on the above information.

				
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Description: STATUTORY AND COMMON LAW DIRECTORS DUTIES - A SUMMARY