Company Law Essay Example

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Company Law

Events that may result in Breach of duty is where a person or either a company fails to take up the responsibility for a company or another person. In breach of duty, a number of questions are asked if the defendant had a duty to the plaintiff and was the duty reasonable. Did the defendant breached the duty out of negligence? And what motives or intentions did the defendant had towards the plaintiff. Mostly there are certain laid laws under various acts such as company constitutions and codes of conduct that guide on how to ascertain breach of duty (Orchard & Maria p no.366).

Considering the case of Molly here, she did not breach any duty. According to section 6.1 of the criminal code in Corporation Act 2001 article 4.2(c) that explains offence less events by which the director fails to perform a duty. Therefore some of the conducts may not be voluntary (Ishaq et al., p no. 83). In reference to Molly’s situation, she had a migraine that made her forget the meeting. A migraine this is a serious disease that affects the brain and could have resulted in her memory loss. These were evidence of involuntarily under sub-article 7(a) & (b) of Article 4.2 voluntariness. Secondly, she is a non-executive officer. According to Corporations Act 2011 under section 181 article 1(b) the directors act in the interest of the company and considering that she was sick she did not skive the meeting deliberately. Molly being a non-executive director of Backyard limited she had no key role to play in the second meeting despite the fact that it collided with another meeting of Gardens for you Ltd where she is an executive and therefore she adhered to Article 1,(a) &(b) of section 181 in Corporations Act 2001 to serve Gardens4 You Ltd. To that matter, she was to be availed with reports of Backyard Ltd company for the two meetings she was absent by virtue of the position she holds in that company.

According to section 180 of Corporations Act 2001, Article 1 (a) & (b), the directors have an obligation to exercise care and diligence in various capacities they hold in the company. Citing the case of Daniels v AWA Ltd where by the court of appeal held that directors should fully take responsibility of the company’s activities. Daniels was to generally monitor the company’s affairs. Molly should be responsible for the decisions that were made in her absence under Article 2 (a), (b), (c), (d) of the same section of this act to make a rational decision that will satisfy the interest of the company. These will involve deep analysis and evaluation of the financial crisis that had hit the company to force it to borrow the money (Cassel & Doug p no. 180)

Molly breached fiduciary duties. Under section 181 of the Corporations Act, Molly failed to discharge duties in good faith by deciding to resign as a director because the company was unable to service its loan. Citing the case of Metropolitan Fire System v Miller where Miller was held liable for the insolvency of Metropolitan Fire System since the company incurred the debt when he was still the director. Under section 180 of Corporation Act that requires diligence and care from directors, Molly was to be liable of Backyard’s insolvency since she was the director. Under section 182 of Corporations Act on the misuse of position, Molly went ahead to send emails to the clients of Backyard Company inviting them to her newly opened company instead of establishing her own clients. These were a betrayal of the Backyard Ltd since she got these customers when she was still the director of Backyard and they were meant for Backyard. These also can be termed as improper use of position under Article 183 of Corporations Act. Molly took advantage of her knowing clients under Backyard to benefit her own company. Therefore under section 184 article 2 the above discussed showed breach fiduciary duties and hence offence.

The statutory injunction will be offered here by the court under section 1324 of Corporations Act to prevent Molly’s company from operating since Backyard Ltd is going to be affected through, lack of clients that would have been taken by Molly and inability to service their loan. An injunction will tend to stop the operations of the contravening party to favour the insolvent (Faris & Robert p no. 24)

Statutory derivative action suit here will allow the shareholders of Backyard to express their dissatisfaction by filing a case against Molly to be held liable for loss in the company. Under section 236 of Corporations Act, a person may file proceedings on behalf of the company with the right provided in section 237 of Corporations Act 2001. In the case of Backyard Ltd, either an officer or shareholder can proceed to act in good faith. They will approve the misconduct of Molly with relevant evidence of her inviting Backyards clients to her own company after the resignation and in turn, the court will proceed to settle the proceeding. The court has the mandate to settle or discontinue a proceeding. Citing the case of ASIC vs Rich where by the court freeze Rich’s assets and conducted an investigation and in turn declared the plaintiff’s evidence as inaccurate and Rich had no case to answer. The court will conduct a probe into the company’s books of account and also Molly’s dealings to come up reasonable decisions to make. These allow the stakeholders to bring a wrongdoer to the light of judgment which may otherwise not be done by the company (Thai &Lang p no 254).

Conclusively, the corporation’s act has offered a relevant platform to bring Molly to judgment for her breach of duty and also use relevant procedures in ensuring justice is done.

Work cited

Cassel, Doug. «Outlining the Case for a Common Law Duty of Care of Business to Exercise Human Rights Due Diligence.» Business and Human Rights Journal 1.02 (2016): 179-202.


Ishaq, Hafiz Muhammad, and Quratulain Shamsher. «Effect of Breach of Psychological Contracts on Workplace Deviant Behaviours with the Moderating Role of Revenge Attitude and Self-Control.» Pakistan Journal of Commerce and Social Sciences 10.1 (2016): 69-83.

Knepper, William E., et al. Duty of Loyalty. Vol. 1. Liability of Corporate Officers and Directors, 2016.

Orchard, Maria. «Liability in negligence of the mentally ill: A comment on Dunnage v Randall.» Common Law World Review 45.4 (2016): 366-374.

Thai, Lang. «Australian Statutory Derivative Action–Defects, Alternative Approaches and Potential For Law Reform.» The Dynamism of Civil Procedure-Global Trends and Developments. Springer International Publishing, 2016. 237-254.