Corporate Governance - Good Earth Ltd

In this case, the directors of Good Earth Ltd (GE) are in debt with a number of creditors threatening to wound the company up in insolvency which has arisen because of several decisions made by the board of directors of GE. The cause is attributed to accepting Nature’s Spoils Pty Ltd (NS Pty Ltd) without proper investigation and scrutiny, borrowing $2 million while the company is in negative growth and paying bonuses out of profits reserved for dividends. Thus, it is examined whether the directors’ duties have been breached by investigating whether the directors of GE Ltd owed a duty of care to the company and which of these duties have been breached. Any reference throughout this assignment to a section is a reference to a section under the Corporations Act 2001.

The first issue is to determine the directors of GE to proceed whether the person owes the company fiduciary and statutory duties. In this case, Stan, Henry and Max are clearly the directors as they were appointed to the position as directors. However, the issue is whether Peggy is a director in October 2007 although no formal documentation acknowledging her appointment was lodged with ASIC. According to Section 201D, Peggy is a director as she has consented to the appointment in the annual general meeting held in October 2007, recorded in the minutes in the annual general meeting and thus is not required to be lodged with ASIC under Section 201D(2). It is also argued that in the period after October 2008, Peggy was acting in the position of a “de facto” director. This is held by the case of Corporate Affairs Commission v Drysdale as Peggy who lacked of appointment continued to attend board meetings and advised the company on matters relating to her expertise.

After establishing that the directors owe a duty of care to the company, we shall now examine if they have breached the duty of care. The duty of care and diligence is governed by two aspects of law which is Section 180(1) and the fiduciary duty of care. The fundamentals of common law and statute work to complement each other and Section 180 to 184 operate in addition to the common law duties owed to the corporation. The common law duty has also set significant standards as a result of the ratio decidendi of the AWA case .

To establish if the directors of GE Ltd has breached any directors duty, we have to examine if they have exercised reasonable care and diligence. By using the reasonable person