# Statutory Duties and Liabilities Engaged

## (a) Controlling Act

**Corporations Act 2001 (Cth)** ("the Act") is the controlling legislation. It governs the duties of officers of companies registered under it and imposes both civil and criminal liability on directors who breach those duties.

---

## (b) Directors' Duties Provisions Engaged

### Section 180(1) — Duty of Care and Diligence
A director must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person in a like position in a like corporation, facing like circumstances, would exercise.

**Key concept:** Objective standard. Here, continuing to order stock on credit after the bookkeeper warned of insolvency, and with no realistic prospect of new funding, falls below what a reasonable director would do. The *business judgment rule* in s 180(2) affords no protection because persisting in trading in the face of clear solvency warnings cannot be characterised as a rational business judgment made in good faith.

---

### Section 181(1) — Duty to Act in Good Faith and for a Proper Purpose
A director must exercise their powers and discharge their duties:
- in good faith in the best interests of the corporation; and
- for a proper purpose.

**Key concept:** Subjective/objective good faith. Once the company is insolvent the duty to act in the corporation's best interests extends to creditors as a whole. Continuing to trade exposes creditors to further loss; diverting a profitable contract strips a corporate asset for personal gain. Both are contrary to the company's (and creditors') best interests.

---

### Section 182(1) — Prohibition on 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.

**Key concept:** The *corporate opportunity doctrine* in statutory form. Diverting the profitable customer contract to the director's separately owned company is the paradigm case: the director uses their position to channel a business opportunity (and its revenue) away from the company to themselves, constituting an improper advantage and a detriment to the company.

**Civil penalty** (s 1317E): a pecuniary penalty of up to 5,000 penalty units (individual), or compensation order under s 1317H.

---

### Section 183(1) — Prohibition on Improper Use of Information
A director must not improperly use information obtained because of their position to gain an advantage for themselves or someone else, or to cause detriment to the corporation.

**Key concept:** Companion provision to s 182. The identity of the profitable customer, the terms of the contract, and any commercial intelligence gained in the director's capacity as director of the company is corporate information. Exploiting that information to redirect the contract to the director's own entity attracts this provision in addition to s 182.

---

### Section 184 — Criminal Liability (Good Faith, Use of Position, Use of Information)
Where a breach of ss 181, 182, or 183 is *intentional* or *recklessly indifferent*, the director faces criminal liability: up to 5 years' imprisonment and/or a fine under s 1311 and Schedule 3.

**Key concept:** The civil duties in ss 181–183 are "mirrored" by criminal equivalents where the mental element is dishonest or reckless conduct. On the facts, consciously diverting a contract to a personally owned entity is strong evidence of intentional conduct.

---

## (c) Insolvent Trading Provision Engaged

### Section 588G — Director's Duty to Prevent Insolvent Trading

**The provision:** A director contravenes s 588G(2) (civil) or s 588G(3) (criminal) where:

1. they were a director of the company at the time the debt was incurred;
2. the company was insolvent at that time, or became insolvent as a result of incurring the debt (s 588G(1)(b));
3. at that time, there were *reasonable grounds for suspecting* insolvency (s 588G(1)(c)); and
4. either—
   - (civil, s 588G(2)) the director was *aware* of those grounds, or a reasonable person in a like position in a like company in like circumstances *would* have been aware of them; or
   - (criminal, s 588G(3)) the director was *dishonest*.

**Key concept:** Directors must act as a "watchdog" over solvency. The touchstone is *reasonable grounds for suspecting* insolvency — a low threshold that is clearly met here because the bookkeeper's warning constitutes direct, contemporaneous notice. Continuing to order stock on credit from suppliers while the company cannot pay existing debts as they fall due is the prototypical insolvent trading fact-pattern.

**Liability consequence:** Under s 588M, a liquidator (or, with leave, a creditor) may recover from the director as a *debt* an amount equal to the *loss or damage* suffered by the unsecured creditor in respect of each debt incurred in contravention. The director has no personal-means shield — liability is direct and joint and several where multiple directors are involved.

**Available defences (s 588H):** The director may avoid civil liability by proving:
- reasonable grounds to *expect* (not merely hope) solvency at the time (s 588H(2));
- reliance in good faith on information from a competent, reliable person (s 588H(3));
- illness or other good reason preventing participation in management (s 588H(4)); or
- taking all reasonable steps to prevent the debts being incurred (s 588H(5)).

On the facts none of these defences is likely to succeed: the director had a direct, personal warning and took no remedial action.

---

## Summary Table

| Provision | Category | Key concept |
|---|---|---|
| s 180(1) | Civil duty + civil penalty | Objective standard of care; reasonable director benchmark |
| s 181(1) | Civil duty + civil penalty | Good faith; best interests of company (including creditors on insolvency) |
| s 182(1) | Civil duty + civil penalty | No improper use of position for personal gain (corporate opportunity) |
| s 183(1) | Civil duty + civil penalty | No improper use of corporate information for personal gain |
| s 184 | Criminal | Intentional/reckless breach of ss 181–183 → imprisonment/fine |
| s 588G | Civil duty + civil penalty + criminal | Director must prevent company incurring debts while insolvent; personal liability to creditors for loss |