DUTY (There are three person effected by the breach
of the drectors! MEMBERS When the directors breach their duty entrusted to them, it effects the members. The members can seekremedies provided under the Companies Act. s. 181 members who are oppreseed can seek relief from the court for oppression and unfair conduct. s. 2181!"! application for compulsory windin# up. "f the directors misuse the inside information of the company the are breach of their duty as such the members or other person effected can seek remedy u$s. 1%2A and 1%2& COM"A#Y The company also has some remedy for the breach of duty by the directors. 1. O$erpad Tavistock Holdings Pty Ltd. v Saulsman A mana#er took a mana#ament fees w$out authority 'eld( A director who breach their fudiciary duty owed to the company was ordered to account for an overpayment made by the Co. to him and another company controlled by him. 2. O%tsder who knowin#ly participate in a officer)s breach can be ordered to pay back the profit obtained. Green v Bestobell Whereby the &estobell *ana#er incorporated a company to obtain a contract ri#htfully belon#s to &estobell. &estobell can recover the profit obtained by the company. %. Da&a'es or Co&pensaton. +or &reach of +udiciary ,uty the company can seek a remedy of compensation in -.uity. Markwell Bros Pty Ltd. v CPN "t was held that directors who were in &/+, were liable to compensate the company. Torts of deceit the company can claim for dama#es +or 0e#li#ence &/,! can claim dama#es. 1. s( )*+ impose a varies statutory duties to the officer of the company if in breach officer are #uilty of a criminal offence as well as must compensate if the company suffers loss. 2. Acco%nts of "roft "f the officers makes an undisclosed profit due to the conflict of interest, the court will order the profit toe be return back to the company. egal!Hasting"#s Case The company also has the option to rescind the contract. &ut this ri#ht is depend to circumstances whether the loss is possible to be restored.&ona fide third party purchaser! ussell $insela v $insella Where 2 directors of the company had e3cersied their powers for an improper purpose. The li.uidator succeeded to sou#ht a declaration that the lease was voidable at the company)s option. ,- Ret%rn of "rofts When director obtain property as a conse.uences of a breach of duty the company can seek a declaration to make the director to hold the property as trustee untill it is returned to the company. %#Brien v &alker Where one of the director misapplied the company)s fund to purchase a house on his name. After he died and when the company went on li.uidation, li.uidator seek that the house was bein# held as a constructive or resultin# trust for the company. The Court upheld. CREDITORS 1. The nterest of the credtors When the company is in financial difficulties the directors must act in the interest of the creditors as well as its shareholders. '$ever if the company #oes on insolvency or there is a doubt as to its solvent the interest of the creditors will overide the interest of the shareholders. Nic'olson v Permakra(t. ing vSutton 'eld the directors are in breach of their duty and disre#arded the interest of the creditors when they caused their compoany tolend money at less than market value even when the company is solvent. Gorve v )lavel The director misuse the confidential information to protect him and his other companies from the possible li.uidation as such it effect the interest of the creditors of the company. 'eld( 'e acted improperly. Castrisios v Mc Manus A director who acted to protect himself and his associates upon becomin# aware that li.udation was imminennt. This information was misuse when the director diverted the companys fund to pay off debts incurred by him and his associates 'eld 'e breached s. 1%22!.. +- "%b.c E/a&anaton (s- +01! 4pon receivin# a report fro li.uidators , the court may direct any person deem to #ive information as to the affairs of the company .That notes of ecamination can be used in a le#al proceedin#. *- Inso.$ent tradn' s. %5%%! it is an offence when an officer of the company knew that the company cannot pay the debt but contracted for the debt. s. %512! upon conviction under s. %5%%! the court on an application by the creditors etc will make an order for that officer to pay the whole of part of the debt. s.%521! the court has power to order a person who was #uilty of C&T or misfeasance to restore back the property misappropriated.&ut only applicable durin# windin# up. 2- Fra%d%.ent Cond%ct s. %512! it is an offence to defraud the creditors of the company. 'ere no need to show that the actual fraud had occurs.6o lon# as there is an intention to deprieve the creditors is enou#h. Coleman v T'e *ueen s. %51%! the court can make a conse.uential order. RE3IEF FOR BREACH OF DUTY 1. By 4enera. Meetn' of Me&bers ,irectors who have breached their duties to the company may be e3cused from liability if the #eneral meetin# of the members rtifies their action. )urs v Tomkies They can avoid liability by disclosin# their interest and #ain the approval of the 7*. The 7* also can ratify the actions of the director who e3ercise their powers for improper purposes. Bam(or v Bam(ord ,irector of &amfords alloted shares to &ur#ers for the purpose of preventin# the take over.This was improper use of the power becos the purpose of issuin# shares is to raise the capital. &ut this was ratify by the #eneral meetin# of &armfords. &int'ro+ ,nvestment v &inns 7* can even ratify an improper e3ercise of power whish the directors not yet carried out. Pavilides v -ensen The 7* also can ratify breaches of directors duty of care, both prospectively or retsospectively. .aniels v .aniels &ut the directors breach enables them to #ain benefit then the ratification is invalid. +- By Artc.es At Comon 8aw articles can e3cluded directors liability for breach e3cept fo wilful ne#lect or default. &ut s. 115 1! CA states that if the articles provide e3emption any officer or audiotor of the company a#ains any liability due to ne#li#ence, breach of duty orbreach of trust in raltions to the company is 9/",. Company ay indemnify an officer or aduditor a#ainst liability incurred succesfully defendin# in civil or criminal case. 6. 1152! *- By The co%rts s. %21%! "f they acted honestly and fairly, they can be relieved from liability of breach of trust, duty ne#li#ence or default by the court Permacra(t v Nic'olson "f the director who breach had obtained benefit than the court will not #rant a relief.. /dvance Bank /ustralia v )/, ,nsurance ,irectors spent company fund for election campai#n of company directors.Althou#h they acted honestly and bonafide, but it was not don:t with reference to all circumstance of the case. "ARTIES EFFECTED BY BOD DISC3OSURE OF I#TEREST At Co&&on 3a5 6ometime company provides in their articles that directors must disclose their interest in a contracts and refrain them from votin# on the matter.( TA ;2h! < TA 81. &ut this suspension is only in the &oard meetin# . "f he is a shareholder also, he can vote in 7* even if it involved his interest. At common law a director can avoid breach of fiduciary duty by disclosin# his interest to the #eneral meetin# for ratification. )urs v Tomkies, made full discloser 'eld( 0o &/,! egal!Hastings" v Gulliver Under the Act s. 1%11! re.uires the director if has conflict of interest to make full disclosure to &oard of directors. "f not material interest e# only a member to the other Co.! then no need to declare( s. 1%12! ,eclaration of interest can be made by #ivin# a #eneral notice to the board. s. 1%2 re.uires the said director to #ive certain information to the company i.e. his interest in shares, debentures etc. s. 1%1 re.uires the company to maintain a re#ister of each directors interest in other company.
“Section 172 of the Companies Act 2006 is nothing more than statutory ‘window dressing’. It adds nothing at all of substance to the director’s traditional fiduciary duty of loyalty. It is also confusing and creates unnecessary uncertainty for directors with regard to their legal liability risk.”