LEGL201 Company Law : About Fiduciary Duties

Have, Dr No, Mr. Big and Mr. White breached their directors’ duties and/or fiduciary duties?

Answer:

Issue:

The issue this question is if the nonexecutive directors of Vegas Ltd. can be held liable for violating their statutory duties imposed by the Corporations Act, 2001 and/or the fiduciary duties imposed on the directors by the common law.

Rule:

There are many instances is where the non-executive directors of the corporation decide to remain passive. Therefore they do not take any active part in the management of the corporation. Sometimes these types of nonexecutive directors are also called 'sleeping' director. Generally the nonexecutive directors misunderstand, particularly in case of family run, smaller organizations that irrespective of their status in the company the executive as well as the non-executive directors of the corporation under the legal obligation to comply with the statutory duties and legal requirements that have been prescribed by the Corporations Act, 2001.

According to the Corporations Act, it is necessary that the directors use the same care and diligence expectable from a reasonable person under the conditions of the company, holding the same position and the similar responsibilities that the director has. This duty is prescribed for the directors by s180. In the same way, section 181 of the Act requires that the directors should take action in good faith/proper purpose. In this regard, it is important that the directors always keep company’s best interests in their mind when making a decision on behalf of the company. Another significant duty prescribed for the directors by s 182. As said by this duty, the directors did not use their position improperly. The improper use of position takes place when the director tries to achieve a personal advantage or to cause a loss to their company. In the same way, section 183 requires that any information received by the directors should not be used by them improperly. It can be said that the information has been used improperly if a director tries to achieve a benefit or for some other person or to cause disadvantage to their company.

Application:

In the present case, the non-executive directors of the company, Dr. No, Mr. Big and Mr. White can be considered responsible for violating their duties as the directors of the company. The cause is that they fail to read the draft ASX announcement. This amounts to a breach of duty on the part of these directors. The reason is that the above-mentioned directors have not taken an active part in the management of the company. The nonexecutive directors of the company should keep in mind that they have to play an important role which has serious legal responsibilities and consequences. It has been clearly indicated by the courts in many cases that they are willing to impose high standards on the conduct of the directors. The courts are not ready to provide any leniency for the non-executive directors in case they are found to be in the breach of their duties as the directors of the company.

Conclusion:

The non-executive directors of the company, Dr. No, Mr. Big and Mr. White can be held liable for the breach of their duties as the directors of the company.

Bibliography

ASIC v Adler & Others [2002] NSWSC 1712

ASIC v Rich and Others (2003) 44 ACSR 34

ASIC v Stephen William Vizard [2005] FCA 10373

ASIC v Vines [2006] NSWSC 760