Legal regulation of corporate governance corporate

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also the practices by which that exercise and control of authority is in face affected. Legal regulation of corporate governance Corporate governance laws are the duties and obligations imposed on the company directors and officers by the Corporations Act s180-184, 558(G) and by general law: These duties include the duty to: - Act with care and diligence; - Act in good faith in the best interest of the corporation; and - Not allow the company to continue incurring debts when it is insolvent Case studies Automatic Self-Cleansing Filter Syndicate Co v Cunninghame [1906]
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Lecture 5: Director’s Duties Overview of Director’s Duties
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As part of a director’s duty, they must: 1. Act in good faith in the interests of the company; 2. Act for a proper purpose; 3. Avoid conflicts of interest and 4. Retain discretion Criminal Prosecutions Sect. 1311: Contravention of a provision of the Corporations Act is a criminal offence, unless there is provision to the contrary (needs to be proven beyond reasonable doubt) Sect. 1311: Penalty notices may be issued by ASIC Sect 1315: Criminal proceedings may be commenced by ASIC or the DPP Sect 1316: Prosecutions must be commenced within five years of the contravention Directors can be criminally prosecuted under s 184(1) if they breach their duties, under s181, in a manner that is intentionally dishonest or reckless The Civil Penalty Regime Duty to Avoid Insolvent Trading When a company becomes insolvent the duties of the director change from being owed to the company to being owed to the creditors The general law obligation to creditors in insolvency is supplemented by a statutory duty to avoid insolvent trading (that is, to prevent the company from incurring debts during insolvency)
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Section 95A(1): A person is solvent if, and only if, the person is able to pay all the persons debts, as and when they become due and payable Section 95A(2): A person who is not solvent is insolvent S588M: Purposes of the director accountability and creditor protection, parliament imposed a duty that if the company is unable to pay its debts, then the directors should be personally liable for the debs incurred after the date of insolvency The requirements for the statutory offence of insolvent trading are stated in S588G(1): (a) A person is a director at a time when the company incurs a debt; (b) At that time, the company is insolvent or becomes insolvent by incurring that debt; (c) At that time, a reasonable person would have grounds to suspect that the company was insolvent or would become insolvent by incurring that debt S588G(2): Awareness or deemed awareness of reasonable grounds for suspecting (is a civil penalty provision s1317E) S588G(3): Dishonest failing to prevent (is a criminal offence s1311) ASIC v Plymin (2003) 46 ACSR 126; [2003] VSC 123: ‘Reasonable’ in this context imports the standard of reasonableness appropriate to a director of reasonable competence and diligence, seeking properly to perform his duties as imposed by law (when viewed as a whole) and capable of reaching a reasonably informed opinion as to a company’s financial capacity.
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