LAW

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© John ORR.

Topic 5.1

*****‘TAKEAWAYS’*****

(key points to be remembered)

Who are directors? Directors’ duties

 Loyalty & Good faith

• General Law (fiduciary). • Corporations Act.(ss181-184)

 Care & Diligence

• General Law (care, skill & diligence • Corporations Act (s180)

Breach of Civil Penalty Provisions

Extended definition of director

The term 'director' is defined in s 9 and includes

(a) a person who is validly appointed to the position of a director; and

(b) a person who is not validly appointed as a director if: (i) they act in the position of

director (de facto director); or (ii) the directors of the company are accustomed to act in

accordance with the person's instructions or wishes (shadow director) .

Tests

Care; Text [11.320], 10th ed p 321

Skill; Text [11.340], 10th ed p 324

Diligence; Text [11.350], 10th ed p 333

The Business Judgment Rule; s 180(2)

See Text [11.490], 10th ed p 344.

Facts:

Regal see Text [13.53] 10th ed p 391

Facts: Cook v Deeks see Text [13.83], 10th ed p 392

The facts of Furs Ltd v Tomkies [1936] HCA 3 are set out in Chameleon Mining NL v

Murchison Metals [2010] FCA 1129 [184 - 185] (Finn, Stone and Perram JJ) (the Court) as

follows:

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© John ORR.

Furs Ltd’s managing director, Tomkies , who was authorised to negotiate the sale of a

part of a business, arranged for its sale to a company to be formed. In the course of

negotiations he demanded to be paid £5,000 by the purchaser. This was agreed to and was

to take the form of £4,000 in promissory notes and 1,000 in shares. This payment was not

disclosed to Furs Ltd. Tomkies also arranged for his future employment by the purchaser.

This was disclosed. Furs Ltd brought proceedings against Tomkies seeking a declaration

that the shares belonged to it and an order that they be transferred to it. It sought as well

an order that he pay to it all moneys received by him. The progressive documentation of

the transactions betrayed considerable creativity in the view taken of the nature of the

payment of £5,000. As was said in the joint judgment of Rich, Dixon and Evatt JJ (at

597):

... [t]he documents represent it successively as a remuneration for procuring

the sale [ie a procuration fee], as a lump sum consideration for entering into

the service agreement, and as the price of the formulas and the secret

processes.

[It was held that ]

[E]xcept under the authority of a provision in the articles of association, no director

shall obtain for himself a profit by means of a transaction in which he is concerned on

behalf of the company unless all the material facts are disclosed to the shareholders and

by resolution a general meeting approves of his doing so, or all the shareholders acquiesce.

An undisclosed profit which a director so derives from the execution of his fiduciary duties

belongs in equity to the company. It is no answer to the application of the rule that the

profit is of a kind which the company could not itself have obtained, or that no loss is

caused to the company by the gain of the director. It is a principle resting upon the

impossibility of allowing the conflict of duty and interest which is involved in the pursuit of

private advantage in the course of dealing in a fiduciary capacity with the affairs of the

company.

(Emphasis added.)

ASIC v Adler,

See Text [11.215], 10th ed p 310.

AWA Ltd v Daniels

see Text [11.312], 10th ed p 316