Week 4 Tutorial Assessments

1. What are three key Australian public company directors’ responsibilities?

A director of a company oversees a company on the behalf of the shareholders of the company. It is under the law stated in The Corporations Act 2001 s198A (1), “the business of the company is to be managed by or under the direction of the directors. All directors have a fundamental legal duties and responsibilities (Australian Institute of Company Directors (AICD), n.d.). A public company must have at least 3 directors (not counting alternate directors). At least 2 directors must ordinarily reside in Australia (Australian Securities & Investment Commission, 2015). Directors are appointed during the AGM.

There are several key responsibilities according to The Corporations Act 2001:

* Improper use of information: they have the duties to not inappropriately use of the information of the company for personal gains that could detriment the company * Care and diligence: to act with the degree of care and diligence that a reasonable person might be expected to show in the role. The same duty is imposed on directors at common law. * Good faith: to act in good faith in the best interests of the company and for a proper purpose (s 181), including to avoid conflicts of interest, and to reveal and manage conflicts if they arise. This is both a duty of fidelity and trust, known as a ‘fiduciary duty’ imposed by general law and a duty required in legislation

If Directors continues to trade knowing that the company will not be able to cover its debts and when they fail, the Directors may be personally liable for debts incurred. In addition they may have committed an offence under the Corporations Law and may be prosecuted by ASIC. Directors may also be personally liable for any outstanding company tax liabilities and/or penalties. If Directors of a company knowingly engage in illegal tax avoidance schemes the Tax Office can sue Directors personally for the recovery of penalties and outstanding tax liabilities (ClearCorp, 2012).

2. “They must not be allowed to socialise their losses and privatise their gains!!!” Do you agree? Why? Justify from your own experiences or from what you have heard/seen.
Yes I do agree with that statement because if a company keep doing that, they will never learn to succeed as they know if they fail there will be someone to back them up. For example, in recent years when Citibank was in a financial crisis the U.S government bailed them out. Prior to the crisis Citibank’s CEO Walter Wriston notably said that “Governments will never go broke”. However, he was just a prophet not a historian. What he did not know it governments had been going broke since the fourteenth century. Wriston who conceivably know what was coming. Countries will not go broke and the US government and international institutions would bail out. Bankers would then lend uncontrollably (The Big Picture, 2010). I can relate this to my personal experience. Back in my home country, I run my own business with a friend. Every time when I get profits, I will tend to spend every cent of it and when it comes to buying stock I would not have enough cash to go around. I would then have to turn to my mother to bail me out. Thinking back, it is actually the wrong thing to do because then I was never afraid I would fail because there is someone who will back me out. I believe it is wrong and I should change the way I think. Therefore, I do agree that “They must not be allowed to socialise their losses and privatise their gains!!!”.