In this practice area
Claims by and against directors, officers and other fiduciaries for breach of statutory and general law duties, and the remedies that follow.
When these claims arise
Directors' duty claims are brought by companies, by liquidators after an insolvency, by shareholders through derivative actions, and by ASIC. They commonly involve related party transactions, diverted business opportunities, misuse of confidential information, excessive remuneration, decisions made without adequate information, and payments made when the company was in financial distress.
Fiduciary duties are not limited to directors. Senior employees, agents, partners, trustees and joint venturers can owe them, depending on the relationship.
The legal framework
The Corporations Act 2001 (Cth) imposes duties on directors and officers to exercise their powers with reasonable care and diligence (section 180), in good faith in the best interests of the company and for a proper purpose (section 181), and not to improperly use their position (section 182) or information obtained through it (section 183) to gain an advantage or cause detriment to the company. Section 184 creates criminal offences where those duties are breached recklessly or dishonestly. The business judgment rule in section 180(2) protects directors who make business judgments in good faith, for a proper purpose, without a material personal interest, on an informed basis and with a rational belief that the judgment is in the company's best interests.
These statutory duties sit alongside general law duties. A fiduciary must not place themselves in a position where their duty and interest conflict and must not profit from their position without informed consent. Remedies for breach include equitable compensation, an account of profits, rescission of transactions and constructive trusts over property obtained in breach. Third parties who knowingly assist a breach or receive trust property may also be liable. For contraventions of the civil penalty provisions, courts can make declarations, pecuniary penalty orders, compensation orders and disqualification orders. A court may relieve a director who acted honestly and ought fairly to be excused.
How these matters typically run
These cases turn on documents: board papers, minutes, emails, financial records and the company's own knowledge at the time. The questions are what the director knew, what they should have known, and what they did about it. Directors should notify their directors and officers insurer as soon as a claim or circumstance arises, as coverage for defence costs can be decisive.
Where the company is still trading, proceedings are brought by the company, or by a member under the statutory derivative action with the court's leave. After insolvency, claims are usually brought by the liquidator, often funded by creditors or a litigation funder.
How we act
We act for companies, liquidators and shareholders pursuing claims, and for directors and officers defending them. For directors, we deal early with insurance, access to board records and the business judgment rule. For claimants, we trace the benefit obtained and identify every party that can be made to account for it.