What duties have been breached by Darren under the Corporations Act 2001 (C’th)? Also, what penalties under the Corporations Act 2001, if any, may apply to Darren? Explain fully.

| May 20, 2014

The duties of directors in Australian companies are governed by statutory and general laws which overlap in some areas. However, under the Corporations Act, these laws are codified and clarified which brings out their similarities. In this case study, Darren has breached a number of statutory duties under the Corporation’s Act and the first one is the duty of care and diligence[1]. This duty is very prominent within the common law where directors must exercise their duties in accordance to the set objective care standards[2]. According to this duty, ignorance is highly discouraged in cases where directors do not act accordingly within their mandate and put the interests of the company first. Closely associated with the duty of diligence and care is the business judgment rule[3] whereby decisions taken are informed by sound reasoning. As such, before taking any decision, the subject matter pertaining to the judgment must be understood and deemed appropriate. When Darren proposed to enter into contract with Bottle Sealer Pty Ltd, the motive behind the proposal was not informed by due diligence but by personal interests. As per the requirements of business judgments, the decision arrived at should not in any way jeopardize the operations of a company in terms of profitability and litigations. From the case scenario, the popularity of corks was being overtaken by aluminum caps and yet Darren proposed to enter into a long term contract of the traditional corks. This would eventually affect the profits of the company in the long run.

 

[1] s.180(1) Corporations Act 2001 (C’th)

[2] Statewide Tobacco Services Ltd v Morley (1990) 2 ACSR 405

[3] s.180(2)

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