mlc203vs2-t05 - TOPIC 5 Duties of directors and other...

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© Deakin University T O P I C 5 Duties of directors and other officers R E V I S E D B Y T R O Y K E I L Y F O R T H E U N I T T E A M Contents Introduction 1 Objectives 1 Learning resources 1 Textbook 1 Legislation 1 Directors’ duties and corporate governance 1 The fiduciary relationship 2 Introduction 2 Duties imposed by equity 2 Duties imposed by the Corporations Act 3 Duty to act bona fide in the interests of the company 4 What are ‘the interests of the company’? 4 The duty of good faith 6 Duty to exercise powers for proper purposes 6 Directors acting for more than one purpose – the ‘but for’ test 7 Duty to retain discretion 9 Duty to avoid conflict of interests 9 Contracts with the company 10 Personal profits arising from being a director 10 Bribes and undisclosed benefits 11 Misuse of company funds 11 Taking up a corporate opportunity 11 Using confidential information 12 Competing with the company 12 Conflict of interest: ss 182–183 12 Chapter 2E: Financial benefits to related parties of public companies 13 Duties of care, skill and diligence 15 The reasonable standard of care and diligence 16 Statutory business judgement rule 16
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© Deakin University Directors’ duty to prevent insolvent trading 18 Directors must prevent the company from trading whilst insolvent 18 Defences to a charge of insolvent trading 19 Protections for employee entitlements 19 Insider trading 20 Remedies and penalties for breach of duties 20 Remedies for the company 21 Civil and criminal penalties against officers 21 Excusing directors and officers from the consequences of breaches of duty 22 Ratification by the general meeting 22 Insurance and indemnity 24 Summary 24 The fiduciary relationship 24 Duties imposed by the Corporations Act 25 Remedies and penalties 26 Relief from breach of duty 26 Review question 27 Further resource 27 Tutorial questions 28 Suggested answers 30 Questions 30 Review question 32
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Corporations Law 1 Introduction This topic is probably the most fundamental topic in the unit. You will note there is much more required reading in this topic than the other topics. You must do all the required readings so as to understand the subject matter well. In Topic 4, you learnt that directors have the prime decision-making power of the company thus the law wants to ensure that this power is not abused. In this topic, we look at the restrictions on this power. Objectives At the completion of this topic, you should be able to: understand the fiduciary duties of company directors understand the duties placed on officers of companies by the Corporations Act, including the duty on directors not to allow their company to trade whilst insolvent and the provisions prohibiting insider trading explain the consequences of breaches by directors of both their duties in equity and their duties under the Corporations Act be aware of the circumstances in which directors may be relieved from the consequences of a breach of duty.
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