Stakeholders And Directors' Duties Answers

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Subject Name : Law

Good Faith and Best Interest of the Company

Du Plessis, J. (2019). Directors' duty to act in the best interests of the corporation:'Hard cases make bad law'. 34 Australian Journal of Corporate Law. Retrieved from https://ssrn.com/abstract=3454980

In this article, the author discusses the director's responsibility to function in the best interest of the company and states that the statutory duty of the director to exercise the power is provided in Section 181(1)(a) of the Corporations act 2001 for the best interests of the Corporation. The research of the author focuses on as to whether except the statutory duty is common law duty also present for directors which can pursue them to act in the best interest to the company. The author has also analyzed two cases one of the UK and the other of Australia. Further, the author focuses in the article that the importance of the companies being a separate legal entity shall be recognized and the directors have a duty towards the separate legal entity as the company being distinct from directors shall be administered in the best possible way without any fraud and misfeasance. The article is useful for the topic as it states about the duty of the director to act in the best interest of the company by highlighting section 181(1)(a) of the Corporations Act 2001 and the topic also covers the aspect related to duty of director which states that there should be no uncertainty that the directors are obliged to workout their legal responsibility authorities 'in the best interests of the Company' (s 181(1)(a) Corporations Act) ensures that directors are needed to perform their obligation towards the company as both a separate legal body and corporation. The main limitation of the article is that it does not focus on the good faith aspect which is also a part of section 181 of the Corporations Act 2001 as well as the role of corporate governance is also not present.

Langford, R. T., & Ramsay, I. (2014). Conflicted directors: What is required to avoid a breach of duty?. Journal of Equity, 8(2), 108-127.

In this article, the authors discuss the directors with a conflict of interest and what is required to avoid a breach of duty. The research focuses on disclosure of the conflict, disclosure of specific details related to the transaction in question, and taking appropriate steps to protect the interests of the company, which could include the director stopping the transaction from continuing. In this article, the authors review the applicable case law and determine the reasons contributing to the enforcement of such conditions by the courts. The author further demonstrates that the cases are better viewed as a continuum of appropriate intervention, requiring additional intervention by the manager when the organization needs protection and the manager is in the right position to take preventive action. The article is useful to the topic as it states about the breach of duty and conflicting interests. The main limitation of the article is that it doesn't widely state the duties of the director and the role of corporate governance.

Langford, R. T. (2015). Directors' duties: Conflicts, proactive disclosure and s 181 of the Corporations Act. Company & Securities Law Journal. http://dx.doi.org/10.2139/ssrn.2774166

The author of the article states that the directors in Australian companies are subject to disclosure duties resulting from a variety of sources. The author finds that under common law and statutory responsibilities, disclosure is needed of directors in the case of conflicts of interest and in proposing resolutions for approval to shareholders. The author further inspects the appropriateness of a disclosure requirement as part of an undertaking to act in good faith for the interest of company. The author of the article reveals that it is the responsibility of the company to act in good faith, both under general law and in compliance with section 181(1)(a) of the Corporations Act, serves as an underlying duty, combining provisions of other duties. These include responsibilities to prevent conflicts and benefits, and a responsibility to report sensitive information, particularly when the director faces a dispute and has knowledge that fellow directors are unaware of. The article is useful to the topic as it contains the discussion related to directors duties, conflicts, and best interest of the company and states with the help of case law the following duties of the director- Their powers must be used in the interests of the company-they must not exploit or violate their powers, should avoid competing for personal interests with those of the company, should not misuse their status to hidden profits, and, shall not misappropriate company's funds for personal benefit. The main limitation of the article is that it lacks research on breaches and remedies.

Mayanja, J. (2014). Clarifying the object of directors' endeavors: What Australia can learn from the United Kingdom. UNSW Law Journal. 37(3). Retrieved from http://www.austlii.edu.au/au/journals/UNSWLJ/2014/32

In this article, the author examines the Director's endeavor and what Australia can learn from the UK. The author finds that the Corporation Act explicitly places a duty on directors not to 'use their position unfairly to achieve a benefit for themselves or someone else, or to damage the company.' This article finds that this is again an integral part of the responsibility set out in section 181(1), section 183(1) specifically imposes on directors a duty not to 'use unfairly' any information gained by virtue of their position as a director in order to 'seek a benefit for themselves or someone else, or to cause harm to the company.' The article stipulates 4 ways in which the responsibility to behave in the company's best interests can be structured. Firstly, the responsibility may actually be analyzed as an indication of a fiduciary's general duties. Second, it can be claimed that the obligation is to behave bona fide in the company's interest. Fourth, the task of behaving bona fide for the good of the shareholders. Fourthly, it can be derived from certain contemporary definitions, the obligation is to behave in good faith for the benefit of all those who have relationships with or involvement in the company – not just those who own stock in the company, but even all who have derivative rights in its securities, along with its owners, staff, vendors, consumers, and others. The article is useful for the topic as it discusses the director's duties towards the company and states about acting fairly to the company by the director. The main limitation of the article is that it doesn’t cover the role of corporate governance.

Byrne, M. (2006). The duties and liabilities of persons below board level. Canberra Law Review, 9(2), 45-64. Retrieved from https://core.ac.uk/download/pdf/11036479.pdf

In this article, the author discusses the liabilities and duties of company persons other than the board and states that the advisors, managers, and consultants who 'participate in the administration of a corporation' may experience a potential risk of responsibility in terms of main legal commitments, if not it serves as a director in any capacity. This article reveals even more important consequences. The class individuals that may be trapped under the new reforms are very wide-ranging and the likelihood of exposure of those individuals is far higher than could seem due to other recent regulatory changes concerning corporate governance. The article figures out that corporate administrators, advisors, and consultants need to be very cautious about how their positions should be categorized, including in one-off partnerships with companies. The author further reveals that there will be special risks where their job and opinion contribute towards the supply of details and making decision influencing the company's creditworthiness. The author stipulates that in relation to the duties of concern and vigilance, good faith concerning duties (section 181 of the Corporations Act 2001 (Cth)) do not require a formal review of the actions to determine whether one has reached ethical and decision-making criteria set at an objectively acceptable degree of competence. Good faith duties are more connected to concerns of fairness and dignity and are thus more directly controllable. Although it is probable to breach the duties without being irresponsible or knowingly deceitful as it also requires a belief or understanding that what's happening is not in the interests of the corporation. The article is useful for the topic as the potential risk of members other than the board and section 181 is discussed. The main limitation of the article is that it is only restricted to below board level person's duties and liabilities and also lacks coverage in the best interest of the company.

Marshall, S., & Ramsay, I. (2012). Stakeholders and directors' duties: Law, theory and evidence. UNSW Law Journal, 35(1), 291-316.

In this article, the author states that Section 181(1) of Corporations Act 2001 needs other executive officials and directors to workout their authority and conduct the duties 'in good faith in the corporation's best interests.' The author reviews 2 new inquiries into Australia Corporate governance which had functions overlapping. The first is the CAMAC inquiry and the second is the PJC inquiry. The article aims to find the 2 government investigations against the result of a survey of directors exploring the relationship between the overlapping and often opposing interests of different stakeholders, including staff, creditors, and shareholders. The article further explores as to what degree the new legislation on the roles of directors requires directors to recognize stakeholder interests rather than shareholders. The article is useful to the topic as it states about the duties of the director and also discusses the Director's and stakeholder's responsibility under section 181 of the Corporation Act 2001. The main limitation of the article is that it doesn't cover the role of corporate governance, breaches, and remedies.

Dickfos, J. Directors’ Duties under an Enterprise Approach. Retrieved from https://www.researchgate.net/publication/45109411_Directors'_Duties_under_an_Enterprise_Approach

The author in this article does an economic study of the fiduciary and legal responsibilities of directors to act in good faith and to solve conflicts of interest between directors and their appointed company in favor of the corporation for the proper benefit of their appointed corporation. This paper finds that corporate legislation needs to resolve the dispute between common directors of corporate groups in order to meet their legal and economic responsibilities while managing a corporate group. The author further in the article finds that the legislation struggles to resolve directors 'conflicts of interests resulting from directors' responsibilities belonging to different business community corporations. Any conflicts of interest experienced by directors of independent wholly-owned companies can be determined by relying on section 187 of the Corporations Act and promoting the holding company's interests. This article examines whether a company's recognition will fill this void and give an effective way of managing organization disputes within the business group. The article is useful for the topic as it discusses the duties of the directors. The main limitation of the article is that it is only restricted to duties and conflict and hence other issues are left untouched.

Masum, A., Salahudin, S. N., & Aziz, H. H. H. A. (2018). Corporate governance and directors duty to act in good faith and in the best interest of the company: The Malaysian experience. International Journal of Engineering & Technology, 7(4.38), 795-799.

The authors in the article states about governance of corporate and the duty of directors to behave in good faith and in the Company's best interests. The author states that the mechanisms for corporate governance have the function of regulating and managing corporate operations ensuing in more productive administration and maximizing value of the shareholders. The author adopts a research approach based on legal libraries, concentrating largely on primary and secondary legal sources. The aim of the article is to analyze company directors' responsibility to act in good faith and in the best interests of the business. The article finds that though directors shall workout their power in good faith, the fiduciary obligation is a moral responsibility to behave in good faith in the interests of the company and there is no violation that the directors are acting in what they genuinely feel is in the company's interests. Usually, the judges are hesitant to circumvent the Directors' business judgment. The article also advises that courts shall be open in their dealings. It has the obligation of management to behave in good faith and in the company's best interests. The article is useful for the topic as it states about the role of corporate governance and the duties of the director to act in good faith and best interest. The main limitation of the article is that it shows the perspective of Malaysia's country.

References for Stakeholders and Directors' Duties