Breach His Duty to Act with Care and Diligence in Dealing with Managing the Company

Breach his duty to act with care and diligence in dealing with managing the company. (S180(1)).

Facts

Roc and Grace were keen to expand its business operation by adding Solar Hot Water System into their product line. Nicholas rejected to idea as he tends to run MNS as he was the sole director of the board. The company had economic loss.

Issue

Whether or not Nicholas have breached S180(1), the duty to exercise their power and discharge their duties with care and diligence.

·      Discussion of Legal Principle: This case is similar to AWA v Daniels (1992) 9 ACSR 383, which the auditors and executive directors liable in negligence. And breached of duty that resulted in economic loss.

·      Section 180(1)- states “ a director or other officer of a corporation must exercise their powers and discharge their duties with a degree of care and diligence that a reasonable person would exercise if they

(a) were a director of a corporation’s circumstance;

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

Most  reported directors’ negligence cases were decided in the 19th and early 20th centuries. They set a remarkable low standard of care for directors. Business conditions and expectations have changed since then. And each company and each managerial position is different and no universally consistent benchmark can be set to measure and assess the conduct to company directors. However, the actual requirement of that standard will depend on what sort of role that person was performing in the company.

• Relevant Case: AWA v Daniels 1992 9 ACSR 383. P529-530

Decision: The liquidator found the auditors and executive directors liable for negligence. His Honour found that the directors of AWA had failed to put in place an effective internal system to enable them to monitor the proper conduct of the audit, which had contributed to the failure to report the irregularities. But Most  reported directors’ negligence cases were decided in the 19th and early 20th centuries. They set a remarkable low standard of care for directors. Business conditions and expectations have changed since then.

Application

·      According to the fact in this case, the liquidator more likely to win the case based on result of the precedent in AWA’s case. And liquidator can ask to penalised Nicholas for beaching 180(1) by injunction. A common law damages can be claimed by the company against a director where there has been a breach of duty to act with care, skill and diligence.