The recent case of United Petroleum Australia Pty Ltd v Herbert Smith Freehills [2018] VSC 347 decided by Elliot J provides a good summary of the directors duties set out in the Corporations Act. Without discussing the facts or findings of this case, the summary of the duties and relevant authorities is very useful.

Statutory provisions and relevant principles

606 The claims against Hudson were based on alleged breaches of his duties under ss 180, 181, 182 and 183 of the Corporations Act. Those sections provide as follows:

180 Care and diligence—civil obligation only

Care and diligence—directors and other officers

(1) A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:

(a) were a director or officer of a corporation in the corporation’s circumstances; and

(b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.

Business judgment rule

(2) A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they:

(a) make the judgment in good faith for a proper purpose; and

(b) do not have a material personal interest in the subject matter of the judgment; and

(c) inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and

(d) rationally believe that the judgment is in the best interests of the corporation.

The director’s or officer’s belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold.

Note: This subsection only operates in relation to duties under this section and their equivalent duties at common law or in equity (including the duty of care that arises under the common law principles governing liability for negligence)—it does not operate in relation to duties under any other provision of this Act or under any other laws.

(3) In this section:

business judgment means any decision to take or not take action in respect of a matter relevant to the business operations of the corporation.

181 Good faith—civil obligations

Good faith—directors and other officers

(1) A director or other officer of a corporation must exercise their powers and discharge their duties:

(a) in good faith in the best interests of the corporation; and

(b) for a proper purpose.

(2) A person who is involved in a contravention of subsection (1) contravenes this subsection.

182 Use of position—civil obligations

Use of position—directors, other officers and employees

(1) A director, secretary, other officer or employee of a corporation must not improperly use their position to:

(a) gain an advantage for themselves or someone else; or

(b) cause detriment to the corporation.

(2) A person who is involved in a contravention of subsection (1) contravenes this subsection.

183 Use of information—civil obligations

Use of information—directors, other officers and employees

(1) A person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not improperly use the information to:

(a) gain an advantage for themselves or someone else; or

(b) cause detriment to the corporation.

(2) A person who is involved in a contravention of subsection (1) contravenes this subsection.

607 The relevant legal principles may be stated with little controversy.

***

The full article (3611 words) considers:

Care and due diligence (s 180)
Business judgment rule (s 180(2))
Good faith and best interests of the company (s 181(1)(a))
Proper purpose (s181(1)(b))
Not to gain advantage or cause a detriment (s 182)
No improper use of information (s 183)