DIRECT DUTY

Direct Duty (Corporation Law)

Director's Duty

Introduction

In the given case scenario, the directors of Builders Hardware Ltd have breached their common law and statutory duties under the Corporations Act 2001. According to corporation's act 2001, the director's duty is to maintain the company credential confidential. These breach of contract are comes under the breach of the director's duty, in the corporation's act 2001. The report presents the consequences of breaching these duties.

Discussion

Directors of Builders Hardware Ltd have breached their common law and statutory duties under the Corporations Act 2001. Liability under the 'no conflict' duty is triggered where a director is representing both himself and the company on either end of the same transaction (Austin 2010 pp. 12). The concern is that the director's duty to act in the interests of the company may be compromised by his self-interest in these circumstances. The conflict may be actual or potential. To illustrate, let us say that ABC Ltd enters into a contract to sell some land to one of its director of Builders Hardware Ltd. Even director's of Builders agrees to pay the full market value, the fact that he is on the other side of the transaction gives rise to the possibility of a conflict of interest and duty.

The director's interest may be direct or indirect. By contracting in his own name to buy the land from Builders Hardware Ltd, Builders Hardware Ltd has a direct interest (Park v Dailey News [1962] CH 927). If instead Builders Hardware Ltd contracted to sell the land to another company owned interest would be indirect. Conflicts of interest are remedied by reversing the effect of the tainted transaction and restoring the parties as far as is practicable to the status quo ante (Austin 2010 pp. 12).

The duty applies equally where a director exploits for his own benefit any property, information or opportunity which, by virtue of his office, he ought to exploit for the benefit of the company. Here the director will be liable to account to the company for his personal gains. As a general rule, actions that would otherwise breach the 'no conflict' duty may be authorized in advance or ratified after the event by the members where the director has made full and frank disclosure of his interest. This mirrors the position in the law of trusts where the beneficiaries may consent to actions by the trustees that would otherwise be in breach of trust (Baxt 2008 pp. 10).

The Corporations Act 2001 allows the general rule to be modified by the company's articles to enable the board (acting through the other directors) to authorize or ratify transactions caught by the duty. The second category of directors' duties encompasses duties of care and skill. As well as acting with honesty and propriety, directors must also exercise reasonable care, skill, and diligence: in other words they must be reasonably competent.

The standards of competence expected of directors by the courts have not traditionally been ...