Directors are usually conferred with extensive express and implied powers that may be used in managing a company. As these powers leave the fate of the company largely in the directors’ hands, the common law and Corporations Act 2001 impose certain duties on these directors.1 Directors are considered to stand in a fiduciary relationship with their company, as a consequence of this fiduciary relationship, equity imposes duties on directors.2
On the facts available, there are two issues of directors’ duties to be discussed. The first issue is whether Popper has breached any fiduciary duties and s 181, s 182 and s 184 of the Corporations Act (the Act) by proposing the Electrics Ltd acquiring the land from his daughter. The second issue is whether Brown has breached the common Law duty and s 180 by rarely attending board meeting and saying he’s happy to endorse what the others have decided. Potential liabilities of Popper and Brown are discussed.
Issue One: Whether Popper Has Breached Any Fiduciary Duties, Statutory duties s 181, s 182 and s 184
1. Fiduciary Duty to Act Honestly and in the Best Interest of the Company & s 181(1)(a) and s 184(1)(c)
Directors are under a fiduciary duty to act in good faith and in the best interests of the company and for a proper purpose. The equivalent statutory duty is contained in s 181(1)(a) which states that a director or other officer of a corporation must exercise their powers and discharger their duties in good faith in the best interests of the corporation and for a proper purpose.3 The duty has both subjective and objective elements as explained by Owen J in The Bell Group Ltd v Westpac Banking Corporation.4 The duty is breached if a director acts in a way that no rational director would have considered to be in the best interests of the company: ASIC v Adler.5
Section 184(1)(c) similarly provides that it is an offence if directors are reckless or intentionally dishonest and fail to exercise their powers and discharge their duties in good faith in corporation’s best interests.6
In our case, Popper proposed the Electrics Ltd acquiring the land from his daughter for $1 million and later the contract was approved. The company’s property portfolio manager said the land “may be useful when things pick up”. The information provided indicates that it is not necessary for Electrics Ltd to acquire the land at moment. It is Popper’s daughter needs cash urgently so that Popper proposed that Electrics to acquire the land. Ms Shareholder later learned that Popper has known for some time that proposed zoning changes would reduce the land value well below $1 million. If this is true then Popper’s action involves intentionally dishonest. The objective standard for duty to act in good faith and proper purpose under s 181 was adopted by Santow J in ASIC v Adler:7
In particular, I consider that the standard of behaviour required by s 181(1) is not complied with by subjective good faith or by a mere subjective belief by a director that his purpose was proper, certainly if no reasonable director could have reached that conclusion. This is made clear by the new provisions in s 184(1) which by contrast imposes the additional elements of being “intentionally dishonest” or “reckless” for the purpose of criminal sanctions.8
In my view, Popper has breached the fiduciary duty of acting honestly and in the best interest of the company, he has also breach the statutory duty of s 181(1)(a) and s 184(1)(c).
2. Fiduciary Duty to Avoid Conflict of Interest & s 182(1) and s 184(2)
Directors are under both fiduciary and statutory duties to avoid undisclosed conflicts between their personal interests and the interests of the company. The duty is strictly applied as in Aberdeen…