Directors Duties
Hampton Park Pty Ltd (HP)
Synopsis.
In the case study of Hampton Park Pty Ltd (HP) has four directors; William (Managing Director); Susan, Jack and Gail (Non-executive directors). As HP’s financial position begins to deteriorate, George, the Chief Financial Officer of the company advises the accounts still show a profit and the company would have a solid base to pay out a dividend to its members. In July 2010cHP’s financial state worsens however George declares a technical profit and advises HP can still declare the dividend. June 2010 there was a change in the law for the declaration of dividends however George did not find out about this until late September 2010, the same time the board signed off the financial reports and therefore George could not inform HP of the company’s financial difficulties. The board not knowing George’s advice was regarded as not true, seen it as favourable advice and decided to sign off the reports and declare the dividend to members. Susan was absent from this meeting from an unknown cause. Soon after her dividend was paid the company went into liquidation.
The issues relating to this case is whether there have been any breaches of the officers and directors duty of care under the corporations act and what consequences will be made if such breaches occur. Another issue is whether there have been any breaches of directors duties in relation to insolvent trading and what defences are available for directors who have breached their duties. And also what consequences are in order if such breaches occur.
Issue 1: Breaches of a Director’s and Officer’s Duties under the Corporations Act.
Director’s duties are supported by the Corporations Act (2001)1. Under section 180, it requires directors to act with a degree of care and diligence. Section 1812 requires directors and other officers to act in good faith, in the best interests of the company and for a proper purpose. Section 1823 and 1834 requires directors to not
Synopsis.
In the case study of Hampton Park Pty Ltd (HP) has four directors; William (Managing Director); Susan, Jack and Gail (Non-executive directors). As HP’s financial position begins to deteriorate, George, the Chief Financial Officer of the company advises the accounts still show a profit and the company would have a solid base to pay out a dividend to its members. In July 2010cHP’s financial state worsens however George declares a technical profit and advises HP can still declare the dividend. June 2010 there was a change in the law for the declaration of dividends however George did not find out about this until late September 2010, the same time the board signed off the financial reports and therefore George could not inform HP of the company’s financial difficulties. The board not knowing George’s advice was regarded as not true, seen it as favourable advice and decided to sign off the reports and declare the dividend to members. Susan was absent from this meeting from an unknown cause. Soon after her dividend was paid the company went into liquidation.
The issues relating to this case is whether there have been any breaches of the officers and directors duty of care under the corporations act and what consequences will be made if such breaches occur. Another issue is whether there have been any breaches of directors duties in relation to insolvent trading and what defences are available for directors who have breached their duties. And also what consequences are in order if such breaches occur.
Issue 1: Breaches of a Director’s and Officer’s Duties under the Corporations Act.
Director’s duties are supported by the Corporations Act (2001)1. Under section 180, it requires directors to act with a degree of care and diligence. Section 1812 requires directors and other officers to act in good faith, in the best interests of the company and for a proper purpose. Section 1823 and 1834 requires directors to not
References: WA Court of Appeal in Vrisakis v Australian Securities Commission (1993) 11 ACSR 162 at 170Williams v Scholz [2007] QSC 266 Legislation: Harris, J. Hargovan, A. Adams, M. Australian Corporate Law LexisNexis Butterworths 4th edition, 2013. Websites: Corporations Act (2001) http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s180.html Directors’ Duties – The Insolvent Trading Issues From a Lawyers Perspective, (18 February 2004), Allens Arthur Robinson. http://www.allens.com.au/pubs/pdf/insol/pap18feb04.pdf