Essays on Directors Duty of Care and Diligence Assignment

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The paper "Directors Duty of Care and Diligence" is a perfect example of a management assignment. Section 180 of the Corporation Act 2001 (cth) obligates directors of companies to act with care and diligence while making business decisions on behalf of the company. The standard of care and diligence is that of a reasonable person who is in the position of director, and where the corporation’ s circumstances are similar. If a reasonable person with the same responsibility and office would have taken a similar course of action then it is taken the director did not act in breach of his duty of care and diligence. However, Apollo and Rocky as the executive directors of DEF Ltd failed to exercise their duty of care and diligence.

They insisted on the continuation of exploration activities although they knew gold deposits did not exist in commercial quantities in the sites the company was exploring. A reasonable person in similar circumstances would have discontinued the exploration activities in order to protect the shareholders’ capital. Although it is generally agreed that risk-taking is an essential aspect of business success, reckless risk-taking is generally frowned at.

According to Tomasic, Bottomley and McQueen, the success of a business venture is closely related to the ability of its managers to evaluate risks and deciding which course of action to take depending on the promise of success of each course of action. However, Apollo and Rocky decided to go ahead with the exploration despite knowing that little chance of success. This is a clear breach of the duty to act with care and diligence imposed by section 180 of the Corporation Act. 1(b) The business judgment rule defence Apollo and Rocky may rely on the business judgment rule as a defence of the acquisition of violating their duty of care and diligence.

As set out in section 180 (1) of the Corporation Act 2001 (cth), the business judgment rule means that directors can escape acquisition of breach of the duty of care and diligence if their business decision is honest, well informed and rational.

Bibliography

A. Articles/Books/Reports

Corkery, Jim F, ‘Directors’ powers and duties’ (Longman Cheshire, 1987).

Farrar, John Hynes, ‘Corporate Governance in Australia and New Zealand’ (Oxford University Press, USA, 2001)

Tomasic, Roman, Stephen Bottomley, and Rob McQueen, ‘Corporation Law in Australia’ (The Federation Press, 2002)

B. Cases

Corkery, Jim F, ‘Directors’ powers and duties’ (Longman Cheshire, 1987).

Hogg v Cramphorn Ltd [1967] Ch 254

Howard Smith Ltd v Ampol Petroleum Ltd (1974) UKPC 3

Investments Ltd v Winns Ltd [1979] ACLC 32

Ngurli Ltd v McCann (1953) 90 CLR 425

Winthrop Investments Ltd v Winns Ltd [1979] ACLC 32,

C. Legislation

Corporation Act 2001 (cth), s 181(1)

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