Liabilities of a Director Essay Example for Free

Liabilities of a Director EssayA comp whatsoever is usually established by individuals or Directors (officers included) in this in good example so as to belong it in appropriate manner in order to make maximum profits. For this to happen, it is for the ships company (Pandora Diamonds and Gems Pty Ltd in our case) to enter or make contr comes with outsiders identical Kaplan Bank Ltd and quad Solutions Pty Ltd as out-of-the-way(prenominal) as our case is concerned. The contr coifs made by the company with other outsiders be usually done by Directors who are, most often than not, act as representatives of that mentioned company and be able to be liable by the acts of its Directors as stated in s126. Directors acting on behalf of the company during any contracts are usually in a crucial purview of trust within that company, and therefore, the vast array of legal duties willing stretch out on their shoulders for retention that position. Due to this hot position, it is easier than not, for their powers to be abused in different ways. Directors have been kn proclaim to abuse their powers in office for their personal gain. For example, Directors have been held liable for inappropriately using companys funds in making their personal secret profits.In such cases, the corporate police force comes into play (the Common faithfulness and the Corporations Act 2001 (Cth)) and Directors or any other officer who recklessly breach specific duties and obligations should be prosecuted in the court of law. So for the purpose of liability, the common law and the Corporations Act 2001 (Cth) have been laid down so as to minimize the risk of wrongful behaviors by companys Directors. In this paper, I will discuss the responsibilities, liabilities and duties of a director(s) in a company and give examples how Directors of various companies have been accounted or held responsible for infringing Corporations Act 2001 (Cth) laws.Directors DutiesSince companies are usually es tablished and managed by directors and a number of officers, these directors have that ostensible authority, collectively, to represent that mentioned company and not as an individual Director. As I am going to talk intimately it below, some individual directors (Andrew and Brian in this case) have been known to enter in to some kind of contract with outsiders (other companies) and not collectively as board of directors, as allowed under s201J and s198D of the Corporations Act 2001 (Cth). Directors, in most cases, have contravened these sections of the Act because they have their own material personal interests outside the company and have disowned their duty to act honestly and in good faith to the best interest of the company as per Part 2D.1 of the Corporations Act 2001 (Cth). Directors can only rescind the civil or immoral penalties for breaching the Corporations Act 2001 (Cth) only if they fully understand their liabilities and duties (Sievers, 1997 and Cassidy, 2006).Some o f Corporations Acts laws, which directors need to be watchful for, in order to avoid contravening Corporations Act laws, are and not limited to1. Act in good faith and honest for the best interest of the company.2. By considering companys interests ahead of their own.3. Avoiding conflicts of duty and interest.4. Duty to avoid insolvent trading by the company1. Duty to act honestly and in good faith to the best interest of the companyAs far as s181 of Corporations Acts 2001 (Cth) is concerned, any director including Andrew and Brian in our case, have to act in good faith and in the best interest of the company (Pandora Diamonds and Gems Pty Ltd) (see Darval v labor union Sydney Brick and Tile Co (1988) 6 ACLC 154) and not for their personal intentional purposes. In our case, before resigning, Brian set up his own jewellery business so that he can engage in a lucrative business of supplying jewellery to his new friend Victor after resigning from Pandora Diamonds and Gems Pty Ltd. Bri an, under Corporations Act 2001 (Cth) s.184, whitethorn have infringed the statutory duties that are found in ss.181-183, and therefore liable for civil or criminal penalties as per Corporations Act laws (Sievers, 1997 and Cassidy, 2006).2. Duty not to improperly use the position of a director to gain any personal benefitsAs contained in s182 of the Corporations Act 2001 (Cth), directors must demonstrate their powers for the required purposes so that companies like Pandora Diamonds and Gems Pty Ltd for example can benefit and those directors who violate s180 of the Corporations Act law Sbe penalized or disqualified in the court of law as was illustrated in the case of Mills v. Mills (1938) 60 CLR 150 (Cassidy, 2006).In our case, the exercise of power by Brian to secure some personal advantage by starting his own jewellery business, is considered as an improper purpose because it is not within the purpose of benefiting Pandora Diamonds and Gems Pty Ltd, but to himself (see Mills v. Mills (1938) 60 CLR 150, Biala Pty Ltd v. Uallina Holdings (No 2) (1993) and ASIC v. Adler (2002)). Eventually, Brian will be responsible for any financial benefit he might have received as the head of Pandora Diamonds and Gems Pty Ltd (see Queensland mine Ltd v Hudson (1978) 18 ALR 1) (Cassidy, 2006, p. 251).3. Avoiding conflicts of duty and interest.The conflict of interest is a matter for all board of directors that does not only affect specific directors in the company. According to section 182 and 183 of the Corporations Act, any misuse of directors position just for the disadvantage of the company and for the benefit of the director is generally forbidden by the law (see Aberdeen Railway Co. v. Blaikie Bros (1854). If some sections like s191 to s195 of the Corporation Act is canvas further, it details some important rules on how Directors (Brian included) are supposed to disclose or declare to the board of directors, if there is any personal interest that is colligate to the affairs of the company. This is required so as to ensure that the honesty and integrity of directors are thoroughly observed (Cassidy, 2006).As far as our case is concerned, Brian may have violated s181 of the Corporations Act, for he did not declare or disclose to the board of directors that he has some interest of starting is own business as required under s191 (3) and he may be prosecuted in the court of law for not declaring his interest.4. Duty to prevent insolvent trading by the companyCorporate regulators have tried many means to make sure that there are no companies that can trade while insolvent by imposing higher level of liability on directors. As per s588G of the Corporations Act, civil penalties and personal liability on directors have been imposed on them if in case a company incur a debt and is declared insolvent.An example of a case where directors were liable for the companys insolvency was that of Commonwealth Bank of Australia v Friedrich. Here, maxwell Eise who was a director was fined millions of dollars for causing the company to undergo insolvency. The court argued that Maxwell Eise (Brian and Andrew in our case) had breached s588G of the Corporations Act and was liable for debts incurred by the company because his failure to prevent it.If in case directors of companies like Pandora Diamonds and Gems Pty Ltd have acted criminally and believed to be dishonest, in which may harm the company because of their self personal advantage, ASIC with the assistance of Australian Federal Police, criminal investigation can be conducted and tough procedures has to be followed when collecting evidence that will be use to determined as to whether a prosecution should go a head. And if the case is found to be more serious, it will be handled with the Commonwealth Director of Public Prosecution otherwise the lower courts will plow with these kinds of cases.All in all, directors should carefully study, understand and appreciate their duties and responsib ilities that they are subject to as company bosses. Being a director of a company is not an easy task because there are several fiduciary duties that need to be adhered to.