# Statutory Duties and Liability

## (a) Controlling Act

The **Corporations Act 2001 (Cth)**.

## (b) Directors' Duties Provisions Engaged

- **Section 180 – Care and diligence.** A director must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise in the same position. Continuing to trade and order stock despite warnings of insolvency falls short of the reasonable-director standard.

- **Section 181 – Good faith in the best interests of the company and for a proper purpose.** A director must act in good faith in the best interests of the company and for a proper purpose. Where the company is insolvent or near-insolvent, the interests of the company include the interests of its creditors. Diverting a profitable contract harms, rather than serves, those interests.

- **Section 182 – 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. Diverting the customer contract to the director's own separate company is an improper use of position for personal gain.

- **Section 183 – Improper use of information.** A director must not improperly use information obtained through their position to gain an advantage or cause detriment to the company. Knowledge of, and access to, the profitable customer relationship is corporate information misused for personal benefit.

*(The general-law fiduciary duty to avoid conflicts of interest and not to divert corporate opportunities operates alongside these statutory duties and is equally engaged by the contract diversion.)*

## (c) Insolvent Trading Provision Engaged

- **Section 588G – Director's duty to prevent insolvent trading.** A director is liable where: the company incurs a debt; the company is insolvent (or becomes insolvent by incurring it) at that time; there are reasonable grounds to suspect insolvency; and the director was aware of such grounds, or a reasonable person in the position would have been. Trading on while unable to pay debts as they fall due, with no realistic funding prospect and after an express warning from the bookkeeper, squarely engages this provision.

**Key concept:** The core idea is that a director must not allow the company to incur further debts once they suspect, or ought reasonably to suspect, that the company is insolvent. Insolvency is the cash-flow test — the inability to pay all debts as and when they become due and payable (s 95A). Breach can attract civil penalties, compensation orders, and, where dishonesty is involved, criminal liability under s 588G(3).