## Controlling Act

**Corporations Act 2001 (Cth)**.

## Directors’ duties

- **Section 180(1) — care and diligence:** A director must exercise the degree of care and diligence that a reasonable person in the director’s position would exercise. Continuing to incur credit liabilities after being warned of insolvency, without a realistic funding or turnaround basis, is likely a failure to exercise that care and diligence. The business-judgment protection in **s 180(2)** is unlikely to assist where the director was not properly informed or had no rational basis for believing continued credit trading was in the company’s interests.

- **Section 181(1) — good faith, best interests and proper purpose:** A director must exercise powers and discharge duties in good faith in the best interests of the corporation and for a proper purpose. Diverting a profitable corporate customer contract to the director’s separate company is inconsistent with acting for the first company’s benefit and is an improper use of the directorship for a private purpose.

- **Section 182(1) — improper use of position:** A director must not improperly use their position to gain an advantage for themselves or someone else, or to cause detriment to the corporation. Diverting the contract to the director-owned company is a direct example: it benefits the director/the other company and deprives the first company of the contract and its profit.

- **Section 183(1) — improper use of information:** If the director used customer, contract or commercial information obtained as director to redirect the opportunity, this provision is also engaged. It prohibits improper use of information obtained through the directorship to gain an advantage or cause detriment.

Contraventions of **ss 180(1), 181(1), 182(1) and 183(1)** are civil-penalty contraventions: see **s 1317E**, with possible pecuniary penalty under **s 1317G** and compensation orders under **s 1317H**. If the conduct is reckless or dishonest, the criminal counterparts in **s 184** may also apply, particularly **s 184(2)** (dishonest or reckless breach of s 181) and **s 184(3)** (dishonest improper use of position or information).

## Insolvent trading

- **Section 588G(1)–(2) — director’s duty to prevent insolvent trading:** A director must prevent the company incurring a debt where:
  1. the company is insolvent when the debt is incurred, or becomes insolvent by incurring it;
  2. there are reasonable grounds for suspecting that insolvency; and
  3. the director knew of those grounds, or a reasonable person in the director’s position would have known.

“Insolvent” means unable to pay debts as and when they become due and payable: **s 95A**.

The credit-stock orders are debts incurred by the company. The company’s stopped payments, absence of realistic funding and the bookkeeper’s warning strongly support both insolvency and reasonable grounds for suspicion. The director’s continued ordering on credit therefore likely contravenes **s 588G(2)**.

This can result in personal compensation liability under **s 588M** for loss or damage suffered in relation to the unpaid debts, usually pursued by the liquidator (and, in some circumstances, creditors). Section **588G(2)** is also a civil-penalty provision. If the failure to prevent the debts was dishonest, **s 588G(3)** creates criminal insolvent-trading liability.