Directors Duties

Relief for companies during COVID-19

On 24 March 2020, the Federal Government passed the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (Act).  As a part of the Act, insolvency and corporations laws have been temporarily amended in light of the financial challenges businesses are facing in the wake of COVID-19.  The changes made are intended to avoid unnecessary insolvencies and bankruptcies by providing a safety net for companies and their directors during the pandemic.  This article will discuss the key changes. [Read more…]

Insolvent trading – prison for former Kleenmaid director

Founded in 1980, whitegoods importer and distributor Kleenmaid (Company) fell into administration in 2009 with debts amounting to approximately $96 million, including $26 million in customer deposits that had been paid for appliances yet to be delivered.  After an extensive investigation and 59-day trial by the Australian Securities and Investment Commission (ASIC), founder and former director Mr. Andrew Young (Mr. Young) was sentenced to nine years in jail for offences arising from the Company’s collapse. [Read more…]

A director’s duty to act in the best interests of the company: MG Corrosion Consultants Pty Ltd v Gilmour

The case of MG Corrosion Consultants Pty Ltd v Gilmour [2014] FCA 990 involved allegations of a director authorising unnecessary and excessive payments that caused detriment to a company and its shareholders.  This case serves as a reminder to directors of the importance of adhering to their duties under the Corporations Act 2001 (Cth) (Corporations Act).

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Director Identification Numbers – more red tape?

The Exposure Draft of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2018 (Exposure Draft) was released on 1 October 2018.   If enacted, the provisions contained in the Exposure Draft would amend the Corporations Act 2001 (Cth) and implement a regime including an identification number for directors and a single business register.  The Exposure Draft stems from the announcement made by the Federal Government in the 2018-2019 budget to “target organised crime and tax evasion” by implementing new measures.  Those measures include a new regime to “modernise the business registers program” and merge the Australian Business Register (ABR) with the Australian Securities and Investments Commission (ASIC) Register to make one platform administered by the ABR within the Australian Taxation Office (ATO).[1]  Within this new register, company directors will be required to have an identification number (Director Identification Number or DIN). [Read more…]

Restraint of trade clauses in commercial contracts

A restraint of trade occurs where one party (Covenantor) agrees with another party (Covenantee) to restrict their liberty in the future to carry on trade with other persons who are not parties to the contract see: Petrofina (Gt Britain) Ltd v Martin [1966] Ch 146 at 180.

Restraints of trade clauses are prima facie void, however, the presumption can be rebutted if the restraint is justified because it is reasonable in the circumstances.    Note that there is a significant divide between restraints in commercial contracts and those in employment contract with the latter being widely accepted as only being enforceable for a far shorter period of time. [Read more…]

Loans from Directors – can they be recalled at will?

It’s not uncommon for Directors or family members to loan money to a proprietary limited company which they are on the board of or where they are related to the major shareholders.  In most of these cases the Director is also a representative of the shareholder.  In a lot of cases, there is no express written terms of the loan and where there are multiple directors that represent all equity holders, they have all contributed funds equally.  Subsequently the question often arises as to whether or not the loan is repayable on demand. [Read more…]

Can a third party be made to account for a breach of director’s duties?

It is an unfortunate reality that some directors of companies of all sizes engage in conduct that breaches their legal responsibilities.  In circumstances where a Court finds that the conduct of the director breached the standard of care that they owed, the Court has the power to award damages.  What happens, however, where a third party has received a benefit (knowingly or unknowingly) as a result of the director’s breach – can that third party be held accountable? [Read more…]

Holding company liability for debts of subsidiary

When advising on the suitability of corporate structures, we are commonly asked whether a holding company can be liable for the debts of a subsidiary.  The answer (of course) depends on a number of factors. [Read more…]

ASIC v Macdonald – have the lessons been forgotten?

The case of Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287 (ASIC v Macdonald) decided in the New South Wales Supreme Court, highlights the importance of strict adherence to the requirements of the Corporations Act 2001 (Cth) (Act) when preparing minutes of Directors’ meetings (Board Meetings) for them to be relied upon as evidence in a proceeding. [Read more…]

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