Directors

1
Directors Duties in the OnLine EnvironmentJuly
2001

• Carolyn Reynolds

2
IS THERE A DIFFERENCE?

• Early thinking argued yes
• Now accepted that the same standard applies

3
WHO IS A DIRECTOR?

• Not only appointed directors
• Includes those who direct decision making or
  control the board

4
WHAT ARE THE DUTIES OF A DIRECTOR?

• Function of directors duties to ensure the
  directors loyalty to the company
• Duties include
• to act in good faith and honestly
• to act with due care, skill and diligence
• to act for the benefit of the corporation as a
  whole and exercise powers for their proper
  purpose
• What are the interests of the corporation as a
  whole
• can include interests of the holding company
• does not include interests of directors or
  employees

5
CONFLICTS

• Duty to avoid conflicts that is, a conflict
  between duty to the company and other interests
• Must be a real sensible possibility of conflict
• Circumstances where a conflict exists
• What are the Corporations Act 2001 requirements
  regarding conflicts?
• Directors should not divert corporate
  opportunities, use corporate property or divulge
  confidential information
• Directors should not make improper use of
  information
• Directors should not make improper use of position

6
INSOLVENT TRADING

• Personal liability for directors
• Where company is insolvent or likely to become
  insolvent
• Cannot allow company to incur further debts

7
THE BUSINESS JUDGEMENT RULE

• New defence - introduced by CLERP
• Not a general defence, but only available for
  alleged breaches of the duty of care and
  diligence
• Only applies to business judgements
• Preconditions
• good faith judgement for proper purpose
• no material personal interest
• inform oneself
• rationally believe that in best interests of the
  company
• What difference will it make?

8
DELEGATION BY THE BOARD

• Directors are responsible for acts of delegates
  except in limited circumstances eg reasonable
  belief that delegate would conform
• Delegates must be reliable and competent
• Similarly, directors can rely on information or
  advice in limited circumstances eg reasonable
  belief that expert was competent
• However, directors should not accept information
  or advice at face value

9
ONLINE ISSUES

• Business fundamentals are the same
• Disclosure obligations are the same
• Security and privacy consequences
• Board composition and management team
• Corporate opportunity and conflicts