# Directors’ Duties and Insolvent Trading Liability

**(a) Controlling Act**  
*Corporations Act 2001* (Cth).

**(b) Directors’ duties provisions engaged**  
- **s 180(1)** – duty of care and diligence: a director must exercise the degree of care and diligence that a reasonable person would exercise in the same position (the continued trading and stock orders while insolvent, and the diversion of the contract, each fail this standard).  
- **s 181(1)** – duty of good faith and proper purpose: a director must act in good faith in the best interests of the company and for a proper purpose (diverting a profitable contract to a director-owned entity is not in the company’s best interests and is an improper purpose).  
- **s 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 company (the contract diversion is a classic misuse of position).

**(c) Insolvent trading provision engaged**  
- **s 588G** – duty to prevent insolvent trading: a director contravenes the section if the company incurs a debt while insolvent (or becomes insolvent by incurring it), there are reasonable grounds to suspect insolvency, and the director fails to prevent the company from incurring the debt.