Principles of Corporations Law

Questions: 1.What common law duty and statutory duty if any has Julian breached?2.What common law or statutory duty, have Sol and Daniel breached?3. If the directors have breached their duties do any of them have a defence and if not what are the consequences for them? Answers: 1. It appears that in this case, there is certain duties imposed by the common law and also some duties prescribed by the Corporations Act, 2001 (Cth) that have been breached by Julian while she was acting as the director of the company. The beach of duties by Julian can be assumed due to the reason that Julian did not disclose to the directors of Property Developments Ltd. that Gerald was her uncle. Moreover she also helped her brother, Raphael to get the contract from her company. For this purpose, Julian tells Raphael what the other architectural firms are going to charge. With this information, Raphael is in a position to offer the lowest price to Property Developments Ltd. which was accepted by the company. On the other hand, the law provides that the directors of corporations have to follow certain duties (Ford and Austin, 1995). These duties include the statutory duties that are being provided by the Corporations Act as well as the common-law duties of the directors of corpora tions. In the present case, the relevant duty prescribed by the common law is the duty of the directors according to which they should act bona fide. Hence in view of this duty, it is very important that as compared to their personal interests, the directors give a preference to the interests of the company (Austin and Ramsay, 2013). At the same time, Julian had also breached her statutory duty that has been mentioned in section 181 of the act. In this section, it has been provided that the directors should act in good faith when they are exercising the powers and when they are fulfilling the duties towards the company. This duty also requires that it is the obligation of the directors that they should act for a proper purpose. It will be considered by the law that the directors have reached the duty mentioned in section 181 if the directors use their powers for an improper purpose. This duty will be considered to have been breached by the directors even if they believe that they ar e acting honestly. In view of this position, even if a loss has not been suffered by the company, still Julian can be considered to have breached their statutory duty. Another relevant statutory duty that appears to have been breached in this case is the duty prescribed by section 182. According to this duty, the directors did not use their position improperly. The improper use of the position may take place if the director has used their position for achieving a personal advantage or an advantage for some other person or to cause a detriment to their corporation. This duty was breached when Julian helped Raphael in securing the contract from her company. 2. Sol and Daniel are the other two directors of Property Developments Ltd. in this case, it can be said that these two directors are also liable for the beach of their statutory duties as well as the duties prescribed by the common law. These two directors are responsible for violating the common-law duty which requires that the directors of corporations should act with care and diligence while acting on behalf of the company. Another very significant duty that appears to have been breached in the present case is the duty of the directors to prevent insolvent trading (Ford, 1978). This duty has been imposed on the directors by section 588G, Corporations Act. In the present case, it appears that this duty has been breached by Sol and Daniel when during the board meeting of the company; they do not worry how the company will be going to finance the purchase and do not ask questions regarding the financial statements of the company. This duty is not discharged if the directors have del egated this responsibility to someone else. Therefore in the present case, Sol and Daniel cannot hide behind the fact that they had delegated this task to the accountants of the company. 3. The issue that arises in this question is if any difference is available to the directors of Property Developments against allegations of breach of duty. For this purpose, it has to be considered if the defense against the allegations of breach of duty is available to the present directors. Another issue that has to be considered in this question is if no defense is available to the directors and they are held liable for the breach of their duties what are the penalties that can be imposed on the directors. The defense against the breach of duty by the directors has been provided by the business judgment rule. This rule was provided by the common law and later on, it was also incorporated in the Corporations Act. This rule is mentioned in section 180(2) of the Act. According to this provision, a defense has been provided to the directors regarding the business judgment made by them (Farrar and Hannigan, 1998). For this purpose it is required that the business judgment should have been made by the directors in good faith. It is also required that the directors should have made the judgment for proper purpose and they should not have any personal interest in the business judgment (Paterson and Ednie, 1976). It is also required under this rule that before making the business judgment, the directors should have properly acquainted themselves with the subject matter. It is also necessary that the directors should be able to rationally believe that the business judgment being made by them is in the best interests of their corporation. In the present case, these requirements are not fulfilled because Sol and Daniel have not properly informed themselves regarding the decision that was made by them at the board meeting. Similarly, they fail to understand the financial statements placed before them even if they had a basic understanding of finance. Consequently the civil as well as the criminal penalties that have been provided in the Corporations Act can be imposed on these directors. These include a fine up to $200,000 and similarly, imprisonment for a term of up to five years. References Austin R.P., and Ramsay, I.M., 2013, Fords Principles of Corporations Law (LexisNexis Butterworths, 15th ed.) 432 Farrar J.H. and Hannigan, B 1998 Farrars Company Law (Butterworths, 4th ed,) 382 Ford H.A.J. and Austin, R.P., 1995, Ford and Austins Principles of Corporations Law, Butterworths, 7th ed. 262 Ford, H.A.J., 1978 Principles of Company Law (Butterworths, 2nd ed,) 345 Paterson W.E. and Ednie, H.H., 1976 vol 2, 2nd ed. Australian Company Law, Butterworths,