Sydney Law Review
The Origins of Company Directors’ Statutory Duty of Care
Rosemary Teele Langford,[∗] Ian Ramsay[†] and Michelle Welsh[‡]
The authors investigate the origins of company directors’ statutory duty of care. The findings of their archival research include that, contrary to what is said in some court judgments and corporate law commentaries, the first statutory duty of care in Australia, and arguably the common law world, was introduced in the Companies Act 1896 (Vic). A later version of the duty, in the Companies Act 1958 (Vic) (‘1958 Act’), introduced public enforcement of the duty. Although the implications of this development may not have been appreciated by those participating in the debates regarding the introduction of the 1958 Act, the authors show, through discussion of recent cases involving the statutory duty of care, how the Australian Securities and Investments Commission (‘ASIC’) is now influencing governance standards in Australian boardrooms through the litigation it commences. ASIC is not only an active plaintiff in cases based on the statutory duty of care — using it more than private plaintiffs — but it also typically pursues a public interest agenda in these cases in terms of the remedies it seeks against defendant directors.
The duty of care imposed on directors and officers by s 180(1) of the Corporations Act 2001 (Cth) (‘Corporations Act’) is a central component of statutory directors’ duties. Our objective is to trace the origins of this duty and explore the implications of introducing a statutory duty of care. We argue that these implications are in fact very significant. In particular, the Australian Securities and Investments Commission (‘ASIC’) now plays an important role in setting governance standards in Australian boardrooms through its litigation using the statutory duty of care.
The duty of care introduced in s 107 of the Companies Act 1958 (Vic) (‘1958 Act’) has been widely heralded as the first statutory duty of its kind in the common law world. For example, two judges of the High Court of Australia have stated that ‘[t]he Second Reading Speech introducing the Bill that became the 1958 Act noted that s 107 was the first statutory provision of its kind in either Australia or the United Kingdom’. This view is echoed by company law scholars.
However, our research shows that the first statutory duty of care was, in fact, introduced in the Companies Act 1896 (Vic) (‘1896 Act’). Although there was vigorous parliamentary debate surrounding the introduction of the duty of care in 1896, there appear to be no cases interpreting or applying this duty. It was not re-enacted in the Companies Act 1910 (Vic), which replaced the 1896 Act. By contrast, the duties introduced in s 107 of the 1958 Act formed the basis for the development of the current statutory directors’ duties. They were widely praised for their trailblazing nature. Attorney-General Rylah said of s 107: ‘It is the first provision in the British Commonwealth to my knowledge that attempts to set a standard of honesty and propriety for directors and gives remedies for any breach of the standard set’.
The 1958 Act represented a significant move towards greater public enforcement of corporate law, as can be seen particularly in the provision for investigation and action by the Attorney-General in the event of breaches of directors’ duties and breaches of the prospectus provisions of that Act. The drafters of the legislation and those debating the passage of the Bill in Parliament may not have foreseen the extent of ensuing public enforcement of the duty of care. In recent times, there has been significant public enforcement of the statutory duty of care by the regulator (ASIC) in cases involving directors and officers of large public companies. Indeed, at times ASIC has brought actions against entire boards of directors arguing that all the directors breached their duty of care, and the courts have found breaches of the duty of care in ever wider circumstances.
Given this evolution of the duty of care, this article examines the context and content of the duty of care in the 1958 Act with specific reference to the theme of public enforcement and against the background of the earlier duty in the 1896 Act.
Although this article is concerned with the statutory duty of care, directors owe other statutory and general law duties. In addition to the duty of care in s 180(1), the Corporations Act requires directors and other officers: to act in good faith in the best interests of the company and for a proper purpose; to avoid improper use of position and improper use of information; to disclose to the other directors material personal interests in matters that relate to the affairs of the company; and not to allow the company to trade when it is insolvent. These statutory duties, other than the obligation to disclose material personal interests, are civil penalty provisions. This means that ASIC is able to enforce them and, where there is a contravention, to seek remedies from the court against the defendant director of: a pecuniary penalty of up to $200 000, a compensation order where the company has suffered damage as a result of the contravention, and an order disqualifying the director from managing companies for a period of time the court considers appropriate. ASIC may also commence criminal proceedings for breaches of the duties to act in good faith in the best interests of the company, to act for a proper purpose, to avoid improper use of position and information, to disclose material personal interests and not to allow the company to trade when it is insolvent where ASIC believes the requirements for a criminal action are satisfied.
The structure of this article is as follows. In Part II, the introduction of the duty of care in the 1896 Act is examined. In Part III, detail is given on the 1958 Act and the duties in s 107 of that Act are outlined. Features of the ‘Freighters affair’ are presented — this affair was the catalyst for the duties in s 107. The evolution of s 107 is then probed in more detail and the consequences of a breach of s 107 are examined. In Part IV, there is discussion of the interpretation of the duty of care in s 107(1) based on commentary and case law. Finally, the significance of public enforcement is analysed in Part V. This element of the duty of care in s 107(1) was not emphasised at the time, but as our research demonstrates, has since become of major importance.
The 1896 Act was a response to a series of frauds arising from a major economic boom in the 1880s that was followed by a depression. The Act resulted from calls for Parliament to address perceived deficiencies in the regulation of companies. It contained statutory directors’ duties and, in particular, a duty of care. Section 116(2) of the 1896 Act provided:
Every director shall be under an obligation to the company to use reasonable care and prudence in the exercise of his powers and duties, and shall be liable to compensate the company for any damage incurred by reason of culpable neglect to use such care and prudence.
Unlike the later versions of the statutory duty of care, s 116(2) did not provide for public enforcement of the duty.
The 1896 Act was introduced by Attorney-General Isaacs. Section 116(2) was based on cl 10(2) of a draft English Bill that was an appendix to the 1895 English Davey Committee Report. The Davey Committee stated that it may be thought that such a clause ‘goes beyond any actual decision of the courts. But your Committee think it is right in principle’.
Despite the recommendation, a statutory duty of care was not enacted in England after extensive lobbying and also opposition from some Committee members. A key concern was that such a duty would deter qualified men from becoming directors. In fact, it was not until the Companies Act 2006 (UK) that England introduced a statutory duty of care for directors.
There was vigorous debate concerning the introduction of s 116(2) of the 1896 Act and of the other statutory duties in that Act. A number of duties were proposed, although some of these were removed or amended before the Act was passed. At one stage, s 116(2) was removed from the draft Bill, but was reinserted during another parliamentary session.
Those supporting the introduction of a statutory duty of care were concerned that something needed to be done to protect the public particularly in light of recent scandals. However, the following objections were raised to the introduction of s 116(2):
• It was too harsh and would deter people from becoming directors. For example, Sir John McIntyre stated that the provision would destroy joint stock companies altogether due to the fact that no one would take the risk of acting as a director. He said: ‘[I]f [s 116(2)] was passed companies would not be able to get any man of good reputation and position to act as a director. No man would take the risk’.
• It was too uncertain. This was a common complaint. Sir Frederick Sargood proposed an amendment for the addition of the words: ‘This subsection shall not apply to any case where the director has acted honestly and in good faith’. A related concern was that judges had expressed different views as to whether gross negligence was required and what that term meant.
• It was a moral rather than a legal duty, and other persons (such as parents and members of Parliament) were not subject to such a duty, with shareholders taking risks as to the character of the directors.
• The actions of directors would be judged with hindsight.
The argument that the risk of potential personal liability will deter qualified persons from taking on directorships continues to have resonance today. Often this argument is relied upon by persons or interest groups advocating for a reduction in corporate regulation. For example, in 2014 the Australian Institute of Company Directors (‘AICD’) called for the introduction of an ‘honest and reasonable director defence’. The AICD argued that it was time for a reconsideration of the regulatory settings holding directors personally liable due to the negative impact on business decision-making and outcomes and on the willingness of directors to accept new board appointments.
Although s 116(2) provided that every director was under an obligation to use reasonable care and prudence, the director was only liable to compensate the company for any damage incurred ‘by reason of culpable neglect to use such care and prudence’. The insertion of the word ‘culpable’ was controversial. The Parliamentary Debates indicate that the original Bill did not have this word — which was consistent with the clause that formed part of the Bill that was an appendix to the English Davey Committee Report. Following criticism of this draft of the Victorian Bill, and the Legislative Council voting to remove s 116(2) in its entirety from the Bill, the Attorney-General tabled an amended version of the section in the Legislative Assembly. That version referred to a director only being liable to compensate the company for any damage incurred ‘by reason of gross neglect to use such care and prudence’. The amended section was the subject of extensive debate in Parliament, with members commenting on issues including the meaning of ‘gross negligence’, the extent to which s 116(2) aligned with judicial observations on the duty of care owed by directors under English law, and whether the section imposed an objective standard that might deter people from becoming company directors.
There continued to be debate about s 116(2) of the draft Bill, including articles supporting the enactment of s 116(2) in the two major Victorian newspapers — The Age and The Argus. When the parliamentary debate resumed later in 1896, the Attorney-General tabled a revised version of s 116(2) that now contained the words ‘culpable neglect’ instead of ‘gross neglect’. There is little explanation in the Parliamentary Debates as to why the section was amended with the Attorney-General stating that the section in the amended form would ‘carry out the object much more effectually, and be better all round’. What can be said, however, is that the insertion of the words ‘gross’ neglect and later ‘culpable’ neglect was aimed at ensuring that directors were not liable for mere mistakes and the Attorney-General was of the view that these words better reflected the common law duty of care owed by company directors. The Attorney-General quoted from Palmer on Company Law that company directors would ‘not be held responsible for mere errors of judgment, but they are liable for the consequences of gross negligence or misfeasance’. It is likely that the amendment to s 116(2) was influenced by the English decision in The Overend & Gurney Co v Gibb, where Lord Hatherley LC stated that directors would only be liable for breach of their duty of care if they acted with ‘crassa negligentia’. In a later judgment, Lindley MR stated that ‘directors are not liable for all the mistakes they make ... Their negligence ... must be in a business sense culpable or gross’.
There is a question why the 1896 Act did not provide for public enforcement of the statutory duty of care. The explanation would appear to lie in an understanding of the role at the time of the government bodies administering the companies legislation. As McQueen has observed, when Robert Lowe introduced the first modern companies legislation into the United Kingdom (‘UK’) Parliament in 1856, he rejected any suggestion that the Government should regulate companies as opposed to just administering the legislation and stated: ‘We entirely repudiate as the basis of legislation the principle ... that it is in the power of the Government to prevent the institution of fraudulent companies’. McQueen has written that this attitude became an entrenched part of the administration of the companies legislation in the UK and it also became part of the administration of companies legislation in the Australian colonies. In particular, the general view was that the registrars of companies in the colonies were ‘not responsible for regulation of companies, only for their administration’. Annual company registrations were few, rarely exceeding 80 a year before the turn of the 20th century and usually no more than 50 company registrations a year in the colonies that had the most commerce: New South Wales and Victoria. The work of the registrars of companies was not regarded as sufficiently important, even after Federation in 1901, to justify separate administrative existence or independent funding. The Registrar of Companies in Victoria did not become a separate office until 1958 and the New South Wales Registrar of Companies did not become a separate office until the early 1960s with the introduction of the Companies Act 1961 (NSW).
Even with the introduction of the Uniform Companies Acts by the states in the early 1960s, the enforcement of the legislation did not match its more regulatory content. McQueen has written that one of the great weaknesses of Australian company administration before the Uniform Companies Acts and even after ‘was the virtual absence of any commitment towards the regulation of corporate behaviour’. Others have documented the lack of enforcement of companies legislation during the 1960s by the state corporate affairs commissions with observations that the Uniform Companies Acts did ‘little to change the prevailing laissez-faire, self-regulating nature of company law that had been inherited from nineteenth-century English legislation’.
There is no reported case interpreting s 116(2) of the 1896 Act. In 1910, the 1896 Act was repealed and replaced by the Companies Act 1910 (Vic), which was designed to bring Victorian law into line with English law. In addressing the Legislative Assembly, Mr Mackey commented that because the English Parliament had redrafted and passed new legislation in 1900 and 1907, Victorian law was now different to that of the ‘Old Country’ and that the English Government had written to its dominions suggesting that their law should be revised. He continued:
We, in Victoria, regard Melbourne as the financial centre of Australia, and we want to keep it so. For that reason, it is essential that we should have company law that is easily understood. Our law, because of the fact that we passed the 1896 Act before the English Parliament passed the Act of 1900, contains many departures, most of them in drafting. The result is that the decisions of the English Courts are not always applicable here, and that English text-books, as to these special portions of our Act, cannot be read here, so that our law is uncertain in that regard.
There was also concern that English capitalists investing money in Victoria through Victorian companies should understand Victorian company law and that this would be easier if the laws of Victoria and England were uniform. Although there was discussion about some parts of Victorian law that would be kept in the new Act, there was no specific discussion in the associated Parliamentary Debates about the removal of the duty of care in s 116.
It was not until 1958 that statutory directors’ duties dealing with matters other than disclosure of interests and directors’ conflicts were reintroduced. The 1958 Act was the result of extensive investigation and review of a number of aspects of the regulation of companies, as well as substantial consultation with, and submissions from, stakeholders. These included the Victorian Bar Council, the Institute of Chartered Accountants, the Law Institute of Victoria, the Australian Stock Exchange and the Chartered Institute of Secretaries. Legislative provisions from other jurisdictions such as the UK and New Zealand were reviewed. The Parliamentary Debates evince a high level of cooperation between political parties regarding the introduction of the Act.
Particular attention was paid to the need for public protection in relation to fraudulent activities concerning share hawking, fundraising and the use of unit trusts. Running through the Parliamentary Debates is the clear sense that this legislation was pioneering and also the view that it could be used as a precedent for other jurisdictions. This can be seen in the following statement of Sir Arthur Warner:
This Bill ... represents an honest and sincere attempt to establish Victoria as the leader in company legislation in the English-speaking world. The measure embodies all the best features of other company legislation, and includes a number of provisions which have been the result of original thinking in this State. Since Victoria is the leader in commerce in the Commonwealth, it is fitting that it should lead also in company legislation.
Likewise the Hon P V Feltham said: ‘I expect that this Bill will be treated as a model by the other Australian states. It will be surprising if its pattern is not shortly followed throughout the Commonwealth’.
One aspect of the Act that did not receive extended parliamentary debate was s 107, which introduced statutory directors’ duties to act honestly and with reasonable diligence, and to avoid use of information to gain improper advantage or to cause detriment to the company. These duties formed the basis for the duties included in the Uniform Companies Acts 1961–62.
Section 107 of the 1958 Act provided:
(1) A director shall at all times act honestly and use reasonable diligence in the discharge of the duties of his office.
(2) Any officer of a company shall not make use of any information acquired by virtue of his position as an officer to gain an improper advantage for himself or to cause detriment to the company.
(3) Any officer who commits a breach of the foregoing provisions of this section shall be guilty of an offence against this Act and shall be liable to a penalty of not more than Five hundred pounds and shall in addition be liable to the company for any profit made by him or for any damage suffered by the company as a result of the breach of any of such provisions.
(4) Nothing in this section shall prejudice the operation of any other enactment or rule of law relating to the duty or liability of directors or officers of a company.
There were three differences between s 107 and s 116(2) of the 1896 Act. First, under s 116(2), a director was only liable to compensate the company for any damage incurred by reason of the director’s ‘culpable neglect to use such care and prudence’. In this respect, s 116(2) required a higher standard of proof of wrongdoing or neglect in order to create liability than s 107 did. Second, s 107(1) imposed a requirement for a director to act with ‘reasonable diligence’, while s 116(2) required reasonable care and prudence. Third, and most importantly for our purposes, s 116(2) provided only for a private remedy, but the 1958 Act provided for both a private remedy and criminal penalties in s 107(3).
Section 106 of the 1958 Act retained the disclosure provisions of the 1938 Act, which required directors to disclose interests to the other directors (with minor exceptions).
Section 107 was introduced in response to a detailed investigation and resultant recommendations relating to transactions undertaken by Freighters Ltd (‘Freighters’) and its directors. This investigation revealed a web of transactions giving rise to undisclosed benefits to directors and their associates. There were three main aspects of the objectionable transactions.
First, the directors of Freighters planned for the company to purchase shares in a company called Australian Machinery Company Pty Ltd (‘AMC’). It was proposed that in return for their AMC shares, AMC shareholders would receive shares in Freighters rather than solely cash. However, the majority of AMC shareholders were disinclined to accept anything but cash by way of purchase payment. In order for Freighters to raise the necessary cash to pay the AMC shareholders, some of the directors of Freighters purchased the Freighters shares that would otherwise have been issued to shareholders in AMC. They did so by way of nominees to conceal their identities. The nominees included bank nominees and relatives of the directors. The shares were purchased at a discount to the current market price. Two directors who were not privy to these arrangements became suspicious, but were unable to find out the truth of the transactions. There was a subsequent rights issue, meaning that the directors who had purchased shares in the transaction involving AMC became entitled to more shares. The Report into this affair stated that, combined with the other aspects, this revealed ‘a complete lack of appreciation of the standards demanded of and displayed by public company directors’.
Second, separate selling companies were set up, initially in each state, to distribute Freighters’ products — Freighters sold trailer vehicles and allied products. Certain directors of Freighters (and others) owned interests in these companies, which had the right to distribute the company’s products, enjoying a ‘franchise’ relating to the selling of Freighters’ products and operating on a commission basis. The holding of these interests was described as ‘lucrative’. This involved a conflict of interest in that the directors (who owned the selling companies) were receiving large profits from the sale of these products and had an interest in maximising their profits, whereas their duty to Freighters was to act in the best interests of Freighters. The chair and the managing director of Freighters became concerned about the profits accruing to the selling companies. Proposals were therefore initiated for Freighters to acquire the selling companies. This involved a second form of conflict of interest in that certain directors of Freighters owned the selling companies and therefore desired to put a high value on the selling companies, whereas it was in Freighters’ interests to pay a lesser amount. Moreover, the directors were effectively dealing with themselves in the sale of the companies to Freighters. In the end, the whole of the selling companies were absorbed by Freighters in return for the issue and allotment of fully paid ordinary shares in Freighters to those with interests in the selling companies. Again, the identities of those involved were not disclosed. Subsequently, the directors resolved to divide the existing £1 shares in Freighters into four fully paid 5s shares and to increase the capital of the company from £250 000 to £1 000 000 by the creation of 30 000 000 5s shares. The directors then resolved to issue 500 000 new 5s shares at par and to offer these to existing shareholders in the ratio of one new share for every two shares held. This meant that the directors who accepted Freighters shares in return for their interests in the selling companies were further advantaged.
The final objectionable aspect of the Freighters affair was an employee share scheme. Freighters issued the bulk of shares under the scheme to certain directors and the company secretary. The auditor was also allocated some shares. Shares not taken up by employees were offered to this inner group and some fictional employee names were used. Subsequently, a further new issue was made to all shareholders in the ratio of one new share for every two shares held, so that those taking up shares in this offer were further benefited.
The actions of the directors of Freighters led to a special investigation and much debate concerning how to prevent such a situation reoccurring. The Victorian Attorney-General thought that the Freighters affair showed the deficiency of inspectors’ powers, and of laws concerning disclosure by directors and the regulation of employee share schemes. There was concern that directors could commit offences and not be caught. The adequacy of disclosure laws was much debated. As commented by the Investigator, ‘[c]overt is the badge of fraud’. At the same time, some participants in the debate were concerned that any law reform, for example, reform of directors’ disclosure obligations, not extend too far.
Following the investigation into Freighters, the Statute Law Revision Committee of the Victorian Legislative Assembly proposed the following:
(1) An extension of the disclosure provisions as follows:
It shall be the duty of the Secretary where more than one of the directors of a public company have disclosed pursuant to the provisions of this section an interest in the same contract or transaction to notify all the shareholders of the company of the interest so disclosed by a letter posted to the address of each shareholder shown in the register of shareholders.
(2) A statutory provision requiring that any intention to allot to directors of a public company shares in excess of their pro rata entitlement be disclosed to the shareholders at the time an offer of shares was made to the shareholders.
(3) A recommendation that legislative sanction be given to listing requirements of the Stock Exchange of Melbourne, namely that: (a) of the directors of a public company only those holding office in an executive capacity either with the company or a subsidiary thereof may participate in an issue of shares to employees; and (b) prior to the issue of any shares of an employee share issue to any such director, the consent of the shareholders shall be first obtained.
However, these recommendations were rejected on the basis of a submission by the Law Institute of Victoria, which instead recommended the version of s 107 that was eventually enacted. The Institute considered that the proposed provisions would be a serious impediment to legitimate business operations and that dishonest directors would have little difficulty evading the operation of the provisions. Moreover, such provisions could be a disincentive for incorporation in Victoria. The Law Institute stated:
In the Australian context it is very unwise for any one State to adopt company legislation which is considered irksome or unreasonable in reputable commercial or industrial circles since the state of incorporation is normally a matter of indifference and persons forming a company will generally avoid incorporating it in the state which has a Companies Act which they regard as unreasonable or likely to give rise to undue difficulties...
Instead, the Institute proposed s 107 (as set out above), which was considered a ‘succinct and general statement of the obligations of directors in terms which reputable people would be likely to regard as reasonable’. The disclosure requirements of the 1938 Act were retained (subject to minor redrafting).
In addition to the statutory directors’ duties in s 107, the following measures were also adopted in the 1958 Act. First, changes were made in relation to the requisite composition of the Companies Auditors Board. This issue received much attention in the Parliamentary Debates. Second, changes were made to regulate the privilege against self-incrimination in relation to investigations under the 1958 Act. The directors and one of the banks in the Freighters affair had refused to give evidence. The issue was how far the privilege against self-incrimination should extend, particularly in relation to questions asked by inspectors (as opposed to questions asked in court) and in relation to persons not directly involved in the running of the company.
Third, a provision was inserted (as recommended in the Statute Law Revision Committee’s report on Freighters) empowering the Attorney-General to take action in the name of the company following the report by an inspector if it appeared to the Attorney-General that it was in the public interest that such proceedings be brought by the company for the recovery of damages in respect of any fraud, misfeasance or other misconduct in connection with the promotion or formation of that company or the management of its affairs or for the recovery of any property of the company that had been misapplied or wrongfully retained. The introduction of this provision, together with the duties in s 107, was intended to be ‘of great practical advantage in making people who have made improper profits at the expense of the company account for those profits’. Later in this article, we examine the orders sought under the current regime to determine whether it has, in fact, provided the practical advantage that was envisaged when the first public enforcement model was introduced in 1958.
The main purpose attributed to s 107 of the 1958 Act, both at the time of its introduction and in later commentary, was deterrence. The Explanatory Memorandum to the Companies Bill 1958 stated in relation to s 107:
It was decided to introduce this provision rather than the particular provisions suggested by the Statute Law Revision Committee as it was thought that a more general provision would be more effective. To a large extent the clause is declaratory of the existing law but it is believed that a restatement of the principles of honesty and good faith that should govern directors’ conduct clearly set out in the Act will be an effective deterrent to misconduct and will free the courts from the technicalities of the existing law in dealing with all forms of dishonesty and impropriety by directors.
That the section was mainly declaratory of the law existing prior to its enactment was reiterated by Paterson and Ednie, who stated that the purpose of the section appeared to be to ‘state the law in a compendious and readily accessible form to the intent that it might be a deterrent to misconduct of directors and officers’.
President Wallace in Castlereagh Motels Ltd v Davies-Roe opined (in relation to the subsequent provision in the Uniform Companies Act 1961) that ‘[i]t is not the prevention of financial loss to the company which appears to be the main or direct object of the provisions, but the ensuring that companies are benefited by the proper and devoted discharge by directors of their fiduciary duties’.
As outlined above, s 107(3) of the 1958 Act imposed criminal and civil liability in relation to a breach of the duties in s 107(1) and (2). The criminal penalty was a fine of not more than £500. The civil liability was stated in s 107(3) to be ‘in addition’ to the criminal liability. The civil liability meant the director could be liable to the company for any profit made by the director or for any damage suffered by the company as a result of the breach. By contrast, the earlier duty in s 116(2) of the 1896 Act was not subject to a criminal penalty. Indeed, one member of the Legislative Assembly expressed regret over this. As mentioned above, s 116(2) was based on cl 10(2) of a draft English Bill. The English Davey Committee Report of 1895 made the following argument for not applying criminal penalties to the proposed duty of care:
Demands are sometimes heard for the strengthening of the criminal law. Of course, fraud ought to be punished wherever it is found, and the law should give facilities for its detection and punishment. Culpable negligence and wilful disregard of statutory provisions made for the protection of others may also be properly treated as subject to the criminal law. But your Committee think that the broad distinction between crime and civil liability should be observed. The requirements of new legislation in connexion with commercial matters are sometimes difficult of interpretation, and to visit non-compliance with such requirements with criminal liability, or to treat errors of judgment as criminal, is in the opinion of your Committee to be deprecated. Such a course may have the effect of deterring men of character and means from accepting the position of a director or manager of a company.
The statutory duty of care was subject to criminal penalties from 1958 to 1999 and currently is subject to civil penalties, which were introduced in 1993. The criminal penalties were removed by the Corporate Law Economic Reform Program Act 1999 (Cth). It was thought that the concept of negligence was inconsistent with dishonesty, in that dishonesty suggests an active awareness of wrongdoing, rather than a failure to exercise sufficient care and diligence. Prior to this amendment, a contravention of the statutory duty of care and diligence could give rise to a criminal penalty where the contravention occurred knowingly, intentionally or recklessly and either (i) dishonestly and with an intention to gain an advantage for the defendant or any other person; or (ii) with an intention to deceive or defraud someone.
The orders that a court can make under the civil penalty regime that has existed since 1993 are a pecuniary penalty order, a compensation order and a disqualification order. The civil penalty regime was introduced in response to concerns that: the criminal sanctions provided in the legislation were inconsistent and often inappropriate; courts often appeared reluctant to impose those sanctions; and directors and others who contravened the corporations legislation should not be branded criminals unless they act dishonestly. The modern equivalent of s 107(1) of the 1958 Act is the duty of care and diligence in s 180(1) of the Corporations Act.
In this Part, we focus upon the interpretation of the duty of care in s 107(1) of the 1958 Act, drawing upon early commentary and case law, and comparing this with recent case law.
In line with the view expressed in the Explanatory Memorandum, commentators such as Paterson and Ednie and Ford were of the opinion that the duty of care in s 107(1) was declaratory of the existing law. By contrast, Afterman commented that s 107(1) was more restrictive than the common law. Afterman cited three reasons for his opinion: that criminal liability would attach to a breach of the provision; that the standard of skill demanded of directors was not susceptible to precise formulation due to its inherent subjectivity; and the undesirability of subjecting outside directors (in particular) to prosecution unless they failed to attend to their duties and, thus, misled the public. Much later, two judges of the High Court of Australia expressed the opinion that the joinder of civil and criminal remedies in s 107 meant that the section could not be described as declaratory of the existing law.
Regardless of whether the duty of care in s 107(1), together with the associated remedies, was declaratory of the existing law or not, there was no doubt that the section incorporated the common law duty of care expected of directors. This duty had evolved in the period up to the 1958 Act. In 1959, Sir Douglas Menzies (a member of the High Court) outlined the increase in the standard applied under the common law duty of care from its early application in cases such as the Marquis of Bute’s Case to the principles outlined by Romer J in Re City Equitable Fire Insurance Co Ltd. In the latter case, Romer J stated:
In order, therefore, to ascertain the duties that a person appointed to the board of an established company undertakes to perform, it is necessary to consider not only the nature of the company’s business, but also the manner in which the work of the company is in fact distributed between the directors and the other officials of the company, provided always that this distribution is a reasonable one in the circumstances, and is not inconsistent with any express provisions of the articles of association.
Justice Romer believed the authorities were unclear in terms of what particular degree of skill and diligence was required of a director. His Honour then propounded three principles. The first was that a director ‘need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected of a person of his knowledge and experience’. The second was that a director is not bound to give continuous attention to the affairs of the company:
His duties are of an intermittent nature to be performed at periodical board meetings, and at meetings of any committee of the board upon which he happens to be placed. He is not, however, bound to attend all such meetings, though he ought to attend whenever, in the circumstances, he is reasonably able to do so.
The third principle was that, in the absence of grounds for suspicion, directors were justified in trusting officials to honestly perform duties that, having regard to the contingencies of business and the articles of association, may properly be left to such company officials.
Justice Romer’s judgment in Re City Equitable can be compared with earlier cases from the 19th century. The view that shareholders were responsible for appointing directors had led to the duty of care, skill and diligence being characterised as ‘remarkably low’. For example, in Turquand v Marshall focus was placed on the fact that it was the shareholders who chose such unwise directors. In Re Denham & Co, it was found that the director, who was described as a ‘country gentleman’ rather than a skilled accountant, could not be expected to understand the financial statements of the company. Moreover, as observed in Part II above, early cases required gross or culpable negligence.
Section 107 of the 1958 Act was considered by the Full Court of the Victorian Supreme Court in Byrne v Baker. Like Menzies, the Full Court connected the duty of diligence with the judgment of Romer J in Re City Equitable, stating that ‘a comparison of the language [Romer J] used with the language of s 107 would suggest that the latter was inspired by the former’. The Full Court then opined that the fact the statutory duty does not mention ‘skill’ was significant — the Court found that what the legislature was demanding of honest directors was diligence only and that the degree of diligence demanded was what was reasonable in the circumstances and no more.
The Court followed Romer J’s view, outlined above, that the duties undertaken by directors vary from company to company. It also found that the statutory concept of reasonable diligence had reference to identifiable acts or omissions, rather than to any general characterisation of conduct of a director over a selected period. In other words, the provision did not create liability for being a negligent director in general terms — a contravention involved a particular act or default.
However, in the subsequent case of Byrne v Garrisson, Gowans J said:
Any particular act or omission of a director at any time which does not answer to the standard of using reasonable diligence in the discharge of the duties of his office is an offence. But a set of acts or omissions so integrated as to constitute a single transaction or dealing or piece of conduct may be one breach and constitute a single offence. Most actions may be fragmented, but common sense would react against the idea that it was permissible to break up such a single piece of conduct into its constituent parts until each presented a neutral aspect in order to support a contention that no single part constituted a breach of the required standard, and therefore no offence.
The law concerning the duty of care and diligence has advanced significantly since the introduction of s 107. For example, directors are expected to meet as often as necessary to carry out their functions properly and to take reasonable steps to place themselves in a position to guide and monitor the management of the company — there is now a ‘core, irreducible requirement of involvement in the management of the company’. Courts have also incorporated an objective standard of skill into the duty with respect to understanding the financial statements and financial affairs of the company.
However, in conformity with the judgments of Romer J in Re City Equitable and the Full Court in Byrne v Baker, a director’s position and the company’s circumstances remain relevant in assessing a breach of the duty of care and diligence. In particular, s 180(1) of the Corporations Act provides that a director or other officer of a company must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a director or officer of a company in the company’s circumstances and occupied the office held by, and had the same responsibilities within the company as, the director or officer.
The majority of the directors in Re City Equitable were in fact exonerated by an indemnity clause in the company’s constitution, which exempted directors from liability for loss except when due to their ‘wilful neglect or default’. The Greene Committee, when considering potential amendments to the Companies Acts (UK) 1908–1917, thought that this type of article gave quite unjustifiable protection to directors, stating: ‘Under it a director may with impunity be guilty of the grossest negligence provided that he does not consciously do anything which he recognises to be improper’. The Committee considered it necessary, therefore, to alter the law. Three years after Re City Equitable was decided, a provision was introduced in s 78(1) of the Companies Act 1928 (UK) rendering void any provision that purported to exempt directors from liability for ‘any negligence, default, breach of duty or breach of trust of which [they] may be guilty in relation to the company’. This provision was repeated in subsequent legislation and also in s 111 of the 1958 Act.
Interestingly, the Greene Committee preferred this option to enacting statutory duties because: ‘[t]o attempt by statute to define the duties of directors would be a hopeless task’. The Committee recognised the fact that it was impossible for every director to have an intimate knowledge of the company’s business (or to exercise more than quite general supervision over the company’s business) and that some directors were appointed due to special knowledge of a particular branch or aspect of the company’s affairs or because they were in a position to obtain business for the company. The Committee thought it was preferable to amend the Act to provide that in determining whether a director should be excused (under s 279 of the Act, which enabled the court to relieve directors from liability for negligence or breach of trust), the court should take into consideration all the circumstances relating to a director who had been appointed because of their special knowledge or for a special purpose and not to direct the business of the company generally.
The introduction of the prohibition on exemption clauses in s 78(1) in the Companies Act 1928 (UK) evinces Parliament playing a more interventionist role in the affairs of companies. This is also evidenced in the shift to public enforcement, which is discussed in the next Part.
The introduction of the directors’ duties in s 107 of the 1958 Act combined with the power of the Attorney-General to bring enforcement proceedings allowed for the public enforcement of such duties for the first time in the English-speaking world. By contrast, there was no public enforcement provided in relation to the statutory duty of care in s 116(2) of the 1896 Act. Other parts of the 1958 Act allowing public enforcement included the powers given to inspectors, changes relating to auditors, and stricter regulation of offers of shares to the public. Criminal liability for contravention of the duty of care was removed in 1999. However, the possibility of public enforcement remains, as ASIC is able to instigate punitive enforcement action seeking pecuniary penalties and disqualification orders in addition to compensation orders via the civil penalty regime, which was introduced in 1993. This Part explores the significance of the introduction of public enforcement for breaches of a duty that is traditionally seen to embody private rights, and the influence that ASIC’s use of this mechanism has had in setting governance standards in Australian boardrooms.
While the significance of the introduction of public enforcement for breaches of directors’ duties does not appear to have been recognised in the commentary surrounding the changes made in Victoria in 1958, it was an important development. Traditionally, directors’ duties are seen to embody private rights that govern the relationship between directors and their corporations. As continues to be the case in most common law jurisdictions, the enforcement of directors’ duties in Australia prior to 1958 was reliant on corporations initiating private actions against errant directors. Recent times have seen the introduction of other private enforcement mechanisms in the form of statutory derivative actions in many common law jurisdictions, including Australia. While private enforcement continues to be available in Australia, public enforcement — which began with the provisions that were introduced in Victoria in 1958 and was subsequently adopted by the other states and supplemented by the civil penalty regime — is unusual and similar provisions allowing for public enforcement are not available in the United States or the UK, for example.
The Australian model represents a departure from the approach espoused by the ‘law and economics’ literature that came to prominence, especially in the United States, in the last quarter of the last century. Law and economics scholars view corporate law as a branch of private law, and view its purpose as setting the boundaries of the relationship that exists between managers and shareholders. They see no role, or a very limited role, for the state in its enforcement. The private enforcement models in force in many common law jurisdictions are more likely to conform to the views espoused by law and economics scholars than is the overlapping private and public enforcement model adopted in Australia.
The significance of Australia’s public enforcement for breaches of directors’ duties was not directly recognised when it was introduced in 1958, and in fact was little utilised until the introduction of the civil penalty regime. However, it did receive recognition some years later in 1997, when Whincop and Keyes argued that the view of corporate law in Australia was changing. The authors identified what they deemed to be a ‘surprising phenomenon — corporate law [had] started to assume emblems and norms that resemble those of public law’. They argued that various changes that had taken place in Australian corporate law were indicative of the increasingly public nature of corporate law. One of the changes they identified was the civil penalty regime, introduced as an additional public enforcement regime for contraventions of the statutory directors’ duties.
Whincop and Keyes believed that the realisation of the public potential of Australian corporate law would largely be determined by the types of cases pursued and the interests represented by the regulator. A 2014 study of the first 20 years of ASIC’s use of the civil penalty regime to enforce breaches of all of the statutory directors’ duties, including the duty of care, concluded that ASIC has pursued a public interest agenda. Many of the civil penalty applications were issued against high profile directors of public companies and many could be described as complex in that, along with the directors’ duties breaches, ASIC alleged that a number of other provisions of the Corporations Act had been contravened.
Two of the three orders available under the civil penalty regime — disqualification orders and pecuniary penalty orders — are designed to achieve public interest outcomes. Disqualification orders are designed to protect the public from directors who are unfit to hold office and who otherwise may misuse the corporate form. Removing an unfit director from office can provide protection for individuals who deal with companies; including consumers, creditors and shareholders. The courts also recognise that both disqualification and pecuniary penalty orders are punitive, and have aspects of personal and general deterrence. The purpose of the compensation order is to obtain redress for the company that has suffered a loss as a result of the director’s breach of duty, and is therefore more akin to orders that are available under traditional private enforcement regimes.
The 2014 study of ASIC’s use of the civil penalty regime revealed that of the three civil penalty orders that may be sought by ASIC, the order most frequently sought was a disqualification order, followed by a pecuniary penalty order. A compensation order was sought in less than one-third of all cases and was never the sole order sought. The study concluded that ASIC’s priorities in issuing these civil penalty applications were the protection of the public by seeking to remove from office persons seen as unfit, the punishment of directors for wrongful behaviour and the dissemination of a deterrent message to the market.
As discussed above, the main purpose attributed to s 107 when it was introduced in 1958 was deterrence, and the pursuit of this aim continues to be ASIC’s priority. The Law Institute of Victoria was also of the view that empowering the Attorney-General to take action following a contravention of the duties contained in s 107 increased the potential that persons who caused damage to a company by making profits at its expense would be made to account for those profits. While there has been some potential for the public enforcement model to result in an order requiring directors to account for ill-gotten profits, achieving this result is clearly not ASIC’s priority when it issues civil penalty proceedings following an alleged breach of duty.
A further significant consequence of the public enforcement model that can be traced back to the 1958 provisions is that it has allowed ASIC, through a series of cases, to play a significant role in setting governance standards in Australian boardrooms by successfully arguing before courts that defendant directors have breached their statutory duty of care. Two of these cases concerned directors breaching their duty of care by approving a misleading public statement issued to the Australian Securities Exchange (‘ASX’) and by approving misleading financial statements. These two cases are also of note because the litigation brought by ASIC was against the entire board of directors at the time of the breach of the duty of care. Other prominent successful cases brought by ASIC include breaches of the statutory duty of care: (a) by directors of a major insurance company regarding related party transactions; (b) by three executive officers of another major insurance company in relation to their roles in the preparation of a misleading response to a takeover bid for the company; (c) by the chief executive officer and the chief financial officer of the Australian Wheat Board Ltd (‘AWB’) in relation to their roles in AWB exporting wheat to Iraq and making disguised payments to the Iraqi Government that were in breach of a United Nations resolution that dealt with trade between United Nations members and Iraq; and (d) by the non-executive chairperson of a major telecommunications company in relation to his role prior to the appointment of a liquidator to the company when he, among other things, failed to take reasonable steps to monitor the company’s management and assess the financial position of the company.
A further use of the statutory duty of care by ASIC is a series of cases alleging that the director or executive failed to act with reasonable care and diligence by allowing the company to contravene its statutory continuous-disclosure obligations or another statutory obligation, and thereby expose the company to pecuniary penalties.
An indication of the prominent role played by ASIC in the enforcement of the statutory duty of care is that of the 26 cases in one corporate law book listing where a breach of the statutory duty of care has been established during the period 2000 to 2014, 16 of these cases, or almost two-thirds, were commenced by ASIC. In addition, a search of the ASIC media releases between February 1993, when the civil penalty regime was introduced, and December 2014 identified
30 separate civil penalty applications in which ASIC alleged that directors had breached their duty of care.
Evidence of ASIC’s impact on changing governance standards over time is provided by an examination of the latest iteration of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (‘ASX Principles and Recommendations’). While the ASX Principles and Recommendations are not compulsory they are highly influential as ASX Listing Rule 4.10.3 requires the annual reports of ASX-listed entities to report on the extent that they have complied with the recommendations and, to the extent that they have not complied, to explain their reasons for not doing so. The third edition of the ASX Principles and Recommendations, published in 2014, introduced Recommendation 2.6, which states that:
A listed entity should have a program for inducting new directors and provide appropriate professional development opportunities for directors to develop and maintain the skills and knowledge needed to perform their role as directors effectively.
While there was no equivalent recommendation in the second edition of the ASX Principles and Recommendations, the commentary referred to the importance of directors having adequate knowledge of a range of matters, including the company’s financial position. The commentary to the new Recommendation 2.6 in the third edition states:
Where necessary, the entity should provide resources to help develop and maintain its directors’ skills and knowledge. This includes, in the case of a director who does not have specialist accounting skills or knowledge, ensuring that he or she has a sufficient understanding of accounting matters to fulfil his or her responsibilities in relation to the entity’s financial statements.
In a footnote to this commentary, the third edition of the ASX Principles and Recommendations cites ASIC v Healey, a civil penalty case in which ASIC successfully argued that in order to comply with their duties and the accounting requirements in the Corporations Act, directors are required to have a base level of financial literacy and understanding of accounting matters. In handing down the penalties in this case on 31 August 2011, Middleton J noted that ‘[t]he board’s corporate governance structures were in accordance with the recommendations contained in the ASX’s Corporate Governance Principles and Recommendations [2nd edition]’ and that ‘[a]ll of the board’s corporate governance practices and procedures ... were followed in the process of approval of the relevant financial statements which are the subject of this proceeding’.
Despite complying with the ASX Principles and Recommendations contained in the second edition, the directors were found to have breached their duty of care. It is probable that the outcome of this civil penalty application issued by ASIC, and especially the finding that the breaches occurred despite compliance with the ASX Principles and Recommendations, was a factor that led the ASX Corporate Governance Council to include the new Recommendation in the third edition.
Further evidence of the impact of ASIC’s enforcement of the statutory duty of care on governance standards in Australia can be found in statements made by the AICD, a leading educator of, and advocate for, corporate directors, to its members in response to the court judgments following some of ASIC’s civil penalty applications. For example, following the High Court’s decision in favour of ASIC in its application against seven directors of James Hardie Industries, in May 2012 the AICD issued a statement in which it noted that the case ‘has potentially wide implications for directors, company secretaries and general counsel, in the understanding of their duties and responsibilities’. John Colvin, the Chief Executive Officer and Managing Director of AICD, stated that:
The case is expected to draw greater focus to board administration processes, such as the selection of agenda items, detail within board papers and minute-taking procedures and approval, which is likely to include [sic] increase the demands directors place on company secretaries and general counsels.
The importance of this decision and the likely impact it had on corporate governance practices was reinforced by Mr Colvin, who went on to say: ‘We will incorporate discussion of the judgment and its implications within our education activities for directors, where participants learn the theory, and discuss the practice, of directors’ legal duties and responsibilities’.
As we have discussed in this article, the introduction of the civil penalty regime did not provide the first opportunity for the state to take enforcement action following a suspected contravention of the statutory duty of care. While the significance may not have been recognised at the time, and the potential may not have been realised until ASIC began to actively utilise the enforcement mechanisms at its disposal, the move towards a public role in the enforcement of corporate law in Australia can, in fact, be traced back to the introduction of the statutory directors’ duties in Victoria in 1958. The role that the state would come to have in the enforcement of statutory directors’ duties in Australia is not one that would have been foreseen by the drafters of the 1958 provisions.
Our study of the origins of the statutory duty of care reveals several significant findings. First, contrary to what is contained in a number of court judgments and corporate law commentaries, the first statutory duty of care in Australia and, to the best of our knowledge, in the common law world, was not introduced in the 1958 Act. It was, in fact, introduced much earlier in the 1896 Act. We have examined the vigorous political debate that accompanied the introduction of the statutory duty of care in 1896, showing how some of the arguments used in this debate, such as the argument that the duty would deter qualified people from serving as directors, still resonate more than 100 years later in current debates about directors’ duties.
Second, the duty of care in the 1896 Act was later removed — apparently on the basis that Victorian company law had diverged too much from English company law — but a different version was reintroduced in the 1958 Act. We show how the introduction of the duty of care in 1896 and its reintroduction in 1958 was, in each case, preceded by public concern resulting from corporate fraud. In the case of the 1958 Act, the direct cause of the directors’ duties provisions in this Act was the findings of the special investigation into the actions of the directors of Freighters.
Third, there were several differences between the 1896 duty of care and the duty of care in the 1958 Act. The most significant was that the 1958 Act allowed for public enforcement of the duty. The implications of this development may not have been appreciated by those participating in the debates regarding the introduction of the 1958 Act. We show, through discussion of recent cases involving the statutory duty of care, how ASIC is now setting governance standards in Australian boardrooms through the litigation it commences. These cases have involved matters such as the standard expected of directors when reviewing draft public announcements and when reviewing draft financial statements. ASIC is not only an active plaintiff in cases based on the statutory duty of care, using it more than private plaintiffs, but it also typically pursues a public interest agenda in these cases in terms of the remedies it seeks against defendant directors and officers.
These significant developments were unlikely to have been envisaged by those who debated the introduction of the 1958 Act. But the introduction, for the first time, of public enforcement of directors’ duties changed, in a profound way, the shape of corporate governance in Australia.
[∗] Senior Lecturer, Melbourne Law School, University of Melbourne, Australia. The authors thank Chris Rose for collection of archival material and the two anonymous reviewers for their helpful comments.
[†] Harold Ford Professor of Commercial Law and Director of the Centre for Corporate Law and Securities Regulation, Melbourne Law School, University of Melbourne, Australia.
[‡] Associate Professor, Department of Business Law and Taxation, Monash Business School, Monash University, Australia.
 Other examples of Commonwealth legislation containing a duty of care include: s 25 of the Public Governance, Performance and Accountability Act 2013 (Cth), which imposes a duty of care and diligence on officials of Commonwealth entities; and s 265-1 of the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth), which imposes a duty of care and diligence on directors and other officers of Aboriginal and Torres Strait Islander corporations. These statutory duties are in similar terms to s 180(1) of the Corporations Act.
 Section 107 was the model for the directors’ duties provisions in the Companies Act introduced in each Australian (state) jurisdiction (referred to collectively as the ‘Uniform Companies Acts1961-62’).
 Angas Law Services Pty Ltd (in liq) v Carabelas  HCA 23; (2005) 226 CLR 507, 528 ,  (Gummow and Hayne JJ) (‘Carabelas’). See also Australian Securities and Investments Commission v Vines  NSWSC 1116; (2003) 182 FLR 405, 408  where the Court stated: ‘Section 107 of the Companies Act 1958 (Vic) introduced into the law of that state statutory duties of honesty and diligence for directors.
It was the first legislation of its kind in any Australian state’. In Vines v Australian Securities and Investments Commission  NSWCA 75; (2007) 73 NSWLR 451, 472–3  (‘Vines v ASIC’), the New South Wales Court of Appeal stated:
This is not the occasion on which to trace the development of the liability of directors and managers in tort. It is quite clear that the scope of that liability has significantly been expanded over the years. The expansion commenced about the time that the first such provision was inserted in the Companies Act 1958 (Vic).
 See, eg, Yorston, Brown and Jackson stating that the statutory duty of care and other duties were ‘laid down for the first time in 1958’: R K Yorston, S R Brown and H Jackson, Company Law in Victoria (Law Book, 2nd ed, 1959) 138. For more recent commentary, see Pearce stating that ‘[t]he Victorian Act included in s 107 the first statutory formulation of directors’ duties in Australia’: Michael Pearce, ‘Company Directors as “Super-Fiduciaries”‘ (2013) 87(7) Australian Law Journal 464, 468. See also, Hayne, who writes: ‘It was 90 years ago, in Re City Equitable Fire Insurance Co Ltd (‘City Equitable’), that Romer J described the duties of a director in terms of honesty, skill and diligence. Duties in like terms were not given statutory force until the enactment of s 107(1) of the Companies Act 1958 (Vic)’: K M Hayne, ‘Directors’ Duties and a Company’s Creditors’  MelbULawRw 28; (2014) 38(2) Melbourne University Law Review 795, 804 (citations omitted).
 Duties to disclose certain interests also existed prior to the 1958 Act: see, eg, Companies Act 1938 (Vic) s 149 (‘1938 Act’).
 Victoria, Parliamentary Debates, Legislative Assembly, 9 September 1958, 324. Clause 107 of the Explanatory Memorandum, Companies Bill 1958 (Vic) 9 states: ‘The clause is new and so far as is known is not to be found in any other legislation relating to companies in the English speaking world’.
 See, eg, Australian Securities and Investments Commission v Adler  NSWSC 171; (2002) 168 FLR 253; Adler v Australian Securities and Investments Commission (2003) 179 FLR 1 (‘Adler v ASIC’); Australian Securities and Investments Commission v Vines  NSWSC 738; (2005) 55 ACSR 617; Vines v ASIC (2007)
 NSWCA 75; 73 NSWLR 451; Australian Securities and Investments Commission v Vizard  FCA 1037; (2005) 145 FCR 57 (‘ASIC v Vizard’); Australian Securities and Investments Commission v Healey  FCA 717; (2011) 196 FCR 291 (‘ASIC v Healey’); Australian Securities and Investments Commission v Macdonald (No 11)  NSWSC 287; (2009) 230 FLR 1 (‘ASIC v Macdonald (No 11)’); Morley v Australian Securities and Investments Commission  NSWCA 331; (2010) 247 FLR 140 (‘Morley v ASIC’); Shafron v Australian Securities and Investments Commission  HCA 18; (2012) 247 CLR 465 (‘Shafron v ASIC’); Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345 (‘ASIC v Hellicar’).
 ASIC v Healey  FCA 717; (2011) 196 FCR 291; ASIC v Macdonald (No 11)  NSWSC 287; (2009) 230 FLR 1.
 See Part V below.
 Corporations Act s 181(1).
 Ibid s 182(1).
 Ibid s 183(1).
 Ibid s 191.
 Ibid s 588G.
 Ibid s 1317G(1).
 Ibid s 1317H(1).
 Ibid s 206C.
 Ibid ss 184, 191, 588G(3).
 See John Waugh, ‘Company Law and the Crash of the 1890s in Victoria’  UNSWLawJl 15; (1992) 15(2) University of New South Wales Law Journal 356; Phillip Lipton, ‘A History of Company Law in Colonial Australia: Economic Development and Legal Evolution’  MelbULawRw 32; (2007) 31(3) Melbourne University Law Review 805; Rob McQueen, ‘Company Law as Imperialism’ (1995) 5(2) Australian Journal of Corporate Law 187.
 See Waugh, above n 19; Lipton, above n 19; McQueen, ‘Company Law as Imperialism’, above n 19.
 Board of Trade, United Kingdom, ‘Report of the Departmental Committee Appointed by the Board of Trade to Inquire What Amendments Are Necessary in the Acts Relating to Stock Companies Incorporated with Limited Liability under the Companies Acts, 1862 to 1890’ (Command Paper 7779, 1895).
 Ibid .
 Rob McQueen, A Social History of Company Law: Great Britain and the Australian Colonies 1854–1920 (Ashgate, 2009) 262–3.
 Ibid 266–7.
 Section 174 of the Companies Act 2006 (UK) c 46, provides that a director of a company must exercise reasonable care, skill and diligence which is defined to mean the care, skill and diligence that would be exercised by a reasonably diligent person with the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company and with the general knowledge, skill and experience that the director has.
 Sections 110–13 imposed liability in relation to prospectuses and false statements. Section 114 imposed restrictions on directors and others directly or indirectly selling or disposing of any property to the company. Section 116 related to remuneration and gifts to directors and s 117 imposed liability on directors in relation to the fraudulent creation of certain debts and liabilities.
 Victoria, Parliamentary Debates, Legislative Council, 28 February 1896, 6160.
 Victoria, Parliamentary Debates, Legislative Assembly, 4 March 1896, 6239.
 Ibid 6237, where it is reported that John Hancock said that:
Something must be done to protect the public. He believed there were thousands of pounds that were now put by that would be invested in commerce and trading if there was some sort of guarantee that any director not using proper care would be punished. He only regretted, as he had already said, that there was no punishment of imprisonment, as he felt perfectly sure that when the evil time came the director proceeded against would have filed his schedule and would not have a feather to fly with’.
 See, eg, Victoria, Parliamentary Debates, Legislative Council, 28 February 1896, 6159: ‘The Hon E Miller expressed the opinion that if this very severe provision was passed no good man would be willing to act as a director of a company’. See also Victoria, Parliamentary Debates, Legislative Assembly, 4 March 1896, 6238 where G D Carter said:
The effect of such legislation as was now proposed would be to drive all responsible men out of directorships, to check the spread of public companies, and discourage enterprise in every form. When a director did anything criminally wrong, let him be punished under the criminal law; and the present law was quite sufficient for that. It was impossible to make men and women moral by Act of Parliament, and it was equally impossible by Act of Parliament to make men good business men — able to foresee whether things were likely to go wrong or whether they were likely to go well.
 Victoria, Parliamentary Debates, Legislative Assembly, 4 March 1896, 6230. E L Zox (at 6232) said:
[M]en would be afraid to become directors of public companies in face of such a drastic law, lest they should be treated as criminals. Instead of getting the most honourable and straightforward men to become directors of public companies, they would get men who were altogether unmindful of what became of themselves — men who had, perhaps, no good reputation to lose. Men were not all blessed with the same amount of common sense, commercial knowledge, or discretion.
 See above n 30; see also Victoria, Parliamentary Debates, Legislative Council, 28 February 1896, 6159; Victoria, Parliamentary Debates, Legislative Assembly, 4 March 1896, 6232–3.
 See Victoria, Parliamentary Debates, Legislative Council, 28 February 1896, 6159. Note that a statutory business judgment rule in s 180(2) of the Corporations Act now operates in relation to current duties of care and diligence (both under s 180(1) of the Act and the general law). Sir Frederick had proposed that the duty of care not apply where a director had acted honestly and in good faith. The requirements of the statutory business judgment rule in s 180(2) are that the director or other officer:
(a) make the judgment in good faith for a proper purpose;
(b) not have a material personal interest in the subject matter of the judgment;
(c) inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and
(d) rationally believe that the judgment is in the best interests of the corporation.
 See, eg, Victoria, Parliamentary Debates, Legislative Assembly, 4 March 1896, 6230.
 Ibid 6233–5.
 Victoria, Parliamentary Debates, Legislative Assembly, 3 March 1896, 6218. Murray Smith observed that:
[M]ost honest and capable men made constant mistakes, and that it was not fair to subject them to the judgment afterwards of people who had the opportunity of knowing that these were mistakes, from circumstances which were not present, and could not have been present, at the time to the minds of those who made them.
 Australian Institute of Company Directors, ‘The Honest and Reasonable Director Defence:
A Proposal for Reform’ (Policy Paper, 7 August 2014).
 Ibid 6.
 See above n 21 and accompanying text.
 Victoria, Parliamentary Debates, Legislative Assembly, 3 March 1896, 6217.
 See, eg, Victoria, Parliamentary Debates, Legislative Assembly, 4 March 1896, 6230–9; Victoria, Parliamentary Debates, Legislative Assembly, 14 July 1896, 402–12.
 The Age, 25 May 1896 and The Argus, 11 May 1896. The newspaper articles were quoted in the Parliamentary Debates: Victoria, Parliamentary Debates, Legislative Assembly, 30 June 1896, 125–6 and Victoria, Parliamentary Debates, Legislative Assembly, 14 July 1896, 410.
 Victoria, Parliamentary Debates, Legislative Assembly, 30 June 1896, 125.
 Ibid 125 (I A Isaacs).
 Victoria, Parliamentary Debates, Legislative Assembly, 14 July 1896, 411 (I A Isaacs).
 Ibid 405–6 (I A Isaacs).
 Ibid 405 (I A Isaacs).
 (1871–72)  UKLawRpHL 3; LR 5 HL 480.
 Ibid 487–9, 493.
 Lagunas Nitrate Co v Lagunas Syndicate  UKLawRpCh 97;  2 Ch 392, 435 (‘Lagunas Nitrate’).
 United Kingdom, Parliamentary Debates, House of Commons, 1 February 1856, 124 (Robert Lowe), quoted in Rob McQueen, ‘An Examination of Australian Corporate Law and Regulation 1901–1961’  UNSWLawJl 2; (1992) 15(1) University of New South Wales Law Journal 1, 5.
 McQueen, ‘An Examination of Australian Corporate Law’, above n 51, 9. For a similar argument, see McQueen, A Social History of Company Law, above n 23, 303–11. The administration involved matters such as providing advice in relation to company registrations, ensuring paper work submitted was in proper form and maintaining the register of companies: McQueen, ‘Company Law as Imperialism’, above n 19, 207, 211. However, even maintaining accurate information about companies proved to be a significant challenge for the registrars with many errors evident: Rob McQueen, ‘Limited Liability Company Legislation — The Australian Experience’ (1991) 1(1) Australian Journal of Corporate Law 22, 37–40. This view is also shared by Phillip Lipton who refers to the ‘haphazard’ administration of companies by the registrars in the late 19th century: Lipton, above n 19, 823.
 McQueen, ‘An Examination of Australian Corporate Law’, above n 51, 7. See also McQueen, ‘Limited Liability Company Legislation’, above n 52, for further details of the numbers of company registrations in each of the Australian colonies.
 McQueen, ‘An Examination of Australian Corporate Law’, above n 51, 11.
 Ibid 28.
 Bernard Mees and Ian Ramsay, ‘Corporate Regulators in Australia (1961–2000): From Companies’ Registrars to ASIC’ (2008) 22(3) Australian Journal of Corporate Law 212, 215.
 Victoria, Parliamentary Debates, Legislative Assembly, 4 August 1910, 479.
 Ibid 479–80.
 See, eg, Victoria, Parliamentary Debates, Legislative Assembly, 10 November 1910, 2197–8; Victoria, Parliamentary Debates, Legislative Council, 30 November 1910, 2754–5.
 See, eg, Victoria, Parliamentary Debates, Legislative Assembly, 9 September 1958, 320 (Arthur Rylah, Attorney-General); Statute Law Revision Committee, Parliament of Victoria, Report on Amendments of the Statute Law to Deal with Fraudulent Practices by Persons Interested in the Promotion and/or Direction of Companies and by Firms (1954); Statute Law Revision Committee, Parliament of Victoria, Report of the Inspector Appointed to Investigate the Affairs of Freighters Limited Pursuant to the Provisions of the Companies (Special Investigations) Act 1940 (1956); Statute Law Revision Committee, Parliament of Victoria, Report on the Provisions of Section 10 of the Companies Act 1955 (1956); Statute Law Revision Committee, Parliament of Victoria, Report upon the Provisions of the Companies Acts (re Freighters Limited) (1957); Statute Law Revision Committee, Parliament of Victoria, Report on the Law Relating to Invitations to the Public to Deposit Money with Companies (1958).
 These stakeholders are named in the reports cited above: see above n 60; see also Victoria, Parliamentary Debates, Legislative Assembly, 9 September 1958, 320 (Arthur Rylah, Attorney-General); Victoria, Parliamentary Debates, Legislative Council, 29 October 1958, 1295
(P V Feltham).
 See, eg, Victoria, Parliamentary Debates, Legislative Assembly, 9 September 1958, 320 (Arthur Rylah, Attorney-General). Such material included the ‘Cohen Report’ (Board of Trade, United Kingdom, ‘Report of the Committee on Company Law Amendment’ (Command Paper 6659, 1945)), the Companies Act 1948 (UK) and the Prevention of Fraud Investments Act 1939 (UK). Indeed the Companies Act 1948 (UK) is often noted in the sidenotes to the 1958 Act.
 See, eg, Victoria, Parliamentary Debates, Legislative Assembly, 30 September 1958, 603, 610 (Campbell Turnbull); Victoria, Parliamentary Debates, Legislative Council, 29 October 1958, 1299 (G W Thom); Victoria, Parliamentary Debates, Legislative Assembly, 20 November 1958, 1867 (Campbell Turnbull).
 Victoria, Parliamentary Debates, Legislative Council, 21 October 1958, 1013–14 (Sir Arthur Warner). The Victorian branch of the Chartered Institute of Secretaries opined that ‘the new Companies Act is one of the best in the world and the Victorian Government can be justly proud of being responsible for it’: Chartered Institute of Secretaries, Victorian Division, Changes in the 1958 Companies Act (as affecting Secretaries) (February 1959) 1.
 Victoria, Parliamentary Debates, Legislative Council, 29 October 1958, 1296. J Rodd, commenting after a paper presented by Sir Douglas Menzies at the Eleventh Legal Convention of the Law Council of Australia, 14–18 July 1959, said of the 1958 Act:
[I]t is the most modern of the Companies Acts of the various States and is the latest indication we have of the trend of company legislation in Australia. Moreover, it is legislation which is being currently scanned by the other States with a view to seeing whether uniformity might possibly be achieved. It is also the first time that an Australian state has positively decided that some of the more novel provisions of the current English Companies Act are better omitted, or modified, in an Australian statute.
Sir Douglas Menzies, ‘Company Directors’ (1959) 33(4) Australian Law Journal 156, 169.
 Barrett notes that ‘[t]he Victorian Companies Act of 1958 introduced a number of new provisions that are today taken for granted but were then innovative, progressive and in some cases controversial’: R I Barrett, ‘Towards Harmonised Company Legislation — “Are We There Yet”?’  FedLawRw 6; (2012) 40(2) Federal Law Review 141, 148.
 A subsequent annual general meeting passed the following minute:
[T]hat this meeting approve and confirm the action of the Directors and the conditions of purchase of the entire issued shares in The Australian Machinery Company Proprietary Limited and the Trailer Sales and Service Proprietary Limited in the various States ... Carried Unanimously’.
However, the shareholders believed that this transaction was an exchange of shares by the AMC shareholders transferring their shares to Freighters and taking in return newly issued shares in Freighters. ‘It was not thought advisable to inform the shareholders generally of the service to the company provided by the Directors in finding the cash which was in fact necessary to perfect this transaction’: Statute Law Revision Committee, Report of the Inspector Appointed to Investigate the Affairs of Freighters Limited, above n 60, 11.
 The Investigator, P D Phillips QC wrote:
Like other trustees they are in a position where they must refuse to take advantages which may be available for almost anyone else in the world. In the conduct of the business they will naturally avoid giving such advantages to anyone without some corresponding gain to the enterprise. But their own disqualification from participation must be beyond question. In this case the deliberate falsification of the true position both to their colleague on the Board of Directors and to the shareholders at the General Meeting coupled with the elaborate devices employed to ‘cover up the tracks’ provides evidence that they added to their appreciation of what both the law and business practice demanded, deliberate perception of how this might be evaded.
 Ibid 16.
 As commented in the Report:
Normal business considerations suggested that the shareholders in Freighters should themselves enjoy some at least of the profits resulting from the selling of the products of their company. There was indeed danger of conflict between the producing company and its selling organizations.
 The Report comments:
Theoretically, the producer organization (Freighters Ltd) could have ceased utilizing the selling organization, although if this course had been followed the existing legal relationship may have involved Freighters Ltd in some legal liability ... The position of the Board of Directors of Freighters Ltd was rendered difficult, if not intolerable, by the fact that, with the exception of Mr Siddons these Directors were themselves in an informal but very real sense the proprietors of the selling organizations, the absorption of which was the matter under discussion ... The proper course to pursue was to call for the assistance of outside and independent accountants or valuers, who would have put a fair price upon the selling companies considered in all the circumstances of the case ... This course was not pursued.
 Ibid 18.
 The Report states:
It was explained in justification of the deliberate efforts to ensure that the Directors of Freighters Ltd would not appear as the real proprietors of the selling organizations and the recipients of the newly allotted shares that it was thought undesirable to disclose to the motor trading industry that the Directors of Freighters Ltd were closely associated with these selling organizations.
 See, eg, Letter from Attorney General Victoria re Freighters Ltd — Companies Act 1938 — Anomalies (16 October 1956) in Victoria, Statute Law Revision Committee Minutes, 31 October 1956, 213.
 Moreover, the Companies Squad of the Police Department was seen to be completely overworked and investigations would not be done satisfactorily until its staff were increased: see Victoria, Statute Law Revision Committee Minutes, 21 July 1954.
 Statute Law Revision Committee, Report of the Inspector Appointed to Investigate the Affairs of Freighters Limited, above n 60, 28.
 Professor Donovan suggested that the provisions of the Companies Act 1948 (UK) in relation to disclosure of directors’ interests went too far and suggested something less extensive: see Statute Law Revision Committee, Report upon the Provisions of the Companies Acts, above n 60, 38.
 The Committee debated whether disclosure should be to directors or shareholders and decided that where just one director had a conflict they should just disclose to the other directors, but where more than one did, disclosure should be made to the shareholders: ibid 5. In the end, the disclosure provisions in the 1958 Act required directors to disclose interests in contracts or other conflicting interests to the other directors (subject to certain exceptions).
 The suggested provision was as follows:
No allotment of any share capital of a public company shall be made to a director of that company unless — (a) the allotment is made on the same basis as shares have been allotted to all other shareholders of the company; (b) the intention to allot shares on a different basis to directors of the company has been disclosed to the shareholders at the time the offer of shares was made to the shareholders; or (c) the allotment has been approved at a general meeting of the shareholders’.
 Ibid 6.
 Law Institute of Victoria, Supplementary Report of the Special Companies Committee of the Law Institute of Victoria to the Honourable The Attorney-General of the State of Victoria (11 August 1958).
 There was a new provision exempting directors in relation to interests regarded as immaterial:
see W E Paterson and H H Ednie, Butterworths Annotated Acts Victoria: Companies Act 1958 (Butterworths, 1960) 213.
 1958 Act s 5.
 See, eg, Victoria, Parliamentary Debates, Legislative Assembly, 15 October 1958, 937–40; Victoria, Parliamentary Debates, Legislative Council, 21 October 1958, 1010 (Sir Arthur Warner); Victoria, Parliamentary Debates, Legislative Council, 29 October 1958, 1302 (R W Mack); Victoria, Parliamentary Debates, Legislative Council, 12 November 1958, 1572 (William Slater).
 1958 Act s 146.
 Changes were also mooted in relation to employee share schemes, although these were not adopted. See generally Statute Law Revision Committee, Report upon the Provisions of the Companies Acts, above n 60.
 1958 Act s 144(6). In the predecessor 1938 Act, referral was to a law officer.
 Explanatory Memorandum, Companies Bill 1958 (Vic) 13; see also Paterson and Ednie, above n 84, 252.
 Clause 107, Explanatory Memorandum, Companies Bill 1958 (Vic) 9. Although the reference to technicalities was not explained, Gummow and Hayne JJ in Carabelas  HCA 23; (2005) 226 CLR 507,
529–30  proposed that this may refer to Professor Donovan’s suggestion that a specific remedy might be given to the company to recover any profits made in respect of undisclosed shareholdings to ensure that the company had some real remedy against directors who had abused their position. See Victoria, Statute Law Revision Committee, Minutes of Evidence Accompanying the Report upon the Provisions of the Companies Acts (re Freighters Limited) (12 June 1957) 26.
 Paterson and Ednie, above n 84, 214–15.
  2 NSWR 79, 81. The High Court in Carabelas  HCA 23; (2005) 226 CLR 507, 530  (Gummow and Hayne JJ), after examining early materials relating to s 107, said:
These materials, together with s 107(4) which preserved ‘the operation of any other enactment or rule of law relating to the duty or liability’ of directors and company officers, suggest that s 107 was designed to encourage good corporate governance by provision of deterrents. It did so by imposing criminal and civil liability with respect to actions that would be considered dishonest or improper. The standards of dishonesty and impropriety were to be determined by reference to the existing law.
See also ASIC v Vizard  FCA 1037; (2005) 145 FCR 57, 59 .
 The Law Institute thought that s 107(3) might extend the common law position in so far as it required the defaulting director to account to the company for any profit: Law Institute Victoria, Memo to the Honourable Attorney-General — Companies Bill 1958, 30 July 1958.
 It is stated in Victoria, Parliamentary Debates, Legislative Assembly, 4 March 1896, 6237:
The only thing he (Mr Hancock) regretted was that there was no penalty of imprisonment attached to the provision; because he could see that the clause, as it stood, afforded a loop-hole of escape to an unprincipled man who might become a director of a lot of companies, and then, when a catastrophe occurred, might not be worth powder and shot. What was to be done with such a man? Judge after Judge had called attention to the fact that these people were guilty of criminal negligence, in fact, that they were guilty of fraud; but according to the present state of the law, they could not be criminally proceeded against.
 Board of Trade, United Kingdom, Command Paper 7779, above n 21, .
 See Explanatory Memorandum, Corporate Law Economic Reform Program Bill (Cth) [6.76];
R P Austin and Ian M Ramsay, LexisNexis Butterworths, Ford, Austin and Ramsay’s Principles of Corporations Law (at October 2015) [8.305.15]. Directors may engage in conduct that may be both dishonest and a failure to reach the appropriate standard of care. Many of ASIC’s civil penalty applications that alleged a breach of the duty of care in s 180 also alleged that other duties had been contravened, such as the duties to act in good faith in the best interests of the company and for a proper purpose (s181), and the duties to avoid improper use of position (s 182) and improper use of information (s 183).
 See the former s 1317FA(1) of the Corporations Law as contained in s 82 of the Corporations Act 1989 (Cth); Austin and Ramsay, above n 97, [8.305.15]. The penalty was a fine of up to $200 000 or imprisonment for a term of up to five years or both.
 Senate Standing Committee on Legal and Constitutional Affairs, Parliament of Australia, Company Directors’ Duties: Report on the Social and Fiduciary Duties and Responsibilities of Company Directors (1989) ch 13; Austin and Ramsay, above n 97, [3.390.12].
 As noted above, s 107 also introduced a statutory duty requiring directors to act honestly and a statutory duty requiring officers not to make improper use of information. In an article published in 1959 in the Australian Law Journal, Sir Douglas Menzies propounded the view that the duty of honesty in s 107(1) required the avoidance of unauthorised conflicts and profits: Menzies, above n 65. The equivalent modern duty in s 181(1)(a) of the Corporations Act is applied in this way as well. The duty not to make improper use of information in s 107(2) has been described as the ‘earliest manifestation in Australia of legislation directed against insider trading’: T E Bostock, ‘Australia’s New Insider Trading Laws’ (1992) 10(3) Company and Securities Law Journal 165, 166; Barrett, above n 66, 148. Early commentary surrounding this duty connected it with situations in which a director buys shares from a shareholder, such as those in Percival v Wright  UKLawRpCh 125;  2 Ch 421: see the comments of N H Bowen QC and J Rodd following Menzies’ paper, above n 65, 167–8, 170.
 Paterson and Ednie, above n 84, 252.
 H A J Ford, ‘Uniform Companies Legislation’  UQLawJl 2; (1962) 4(2) University of Queensland Law Journal 133, 158.
 See also Law Institute Victoria, Memo to the Honourable Attorney-General – Companies Bill 1958, 30 July 1958; Re Auzhair Supplies Pty Ltd (in liq)  NSWSC 1; (2013) 272 FLR 304, 325 .
 Allen B Afterman, Company Directors and Controllers: Their Duties to the Company and the Shareholders (Law Book, 1970) 131. Afterman thought that, in view of the criminal sanction involved, the courts might be moved to adopt a concrete formula to determine ‘unreasonable diligence’ possibly involving a requirement that directors attend a majority of board meetings. Afterman also refers to Byrne v Baker  VicRp 57;  VR 443, which is examined in detail below.
 Carabelas  HCA 23; (2005) 226 CLR 507, 530  (Gummow and Hayne JJ).
 Menzies, above n 65, citing Re Cardiff Savings Bank  2 Ch 100 (often called ‘the Marquis of Bute’s Case’) and Re City Equitable Fire Insurance Co Ltd  Ch 407 (‘Re City Equitable’).
  Ch 407, 427. In this case a company had suffered significant losses largely due to the fraud of the managing director. The other directors were sued for want of care and diligence. The company’s constitution exempted directors from liability except for losses caused by ‘their own wilful neglect or default’.
 Ibid, where Romer J discusses various standards.
 Ibid 428. Romer J gave an example concerning a director of a life insurance company — such a director does not guarantee that he or she has the skill of an actuary or a physician.
 Ibid 429.
 See Daniels v Anderson (1995) 37 NSWLR 438, 494G.
 (1868–69)  UKLawRpCh 33; LR 4 Ch App 376, 386. Clarke and Sheller JJA describe this case as the ‘nadir’, observing: ‘However ridiculous and absurd the conduct of the directors it was the company’s misfortune that such unwise directors were chosen.’: Daniels v Anderson (1995) 37 NSWLR 438, 495.
  UKLawRpCh 254; (1883) 25 Ch D 752, 767.
 See, eg, Overend Gurney & Co v Gurney (1868–69)  UKLawRpCh 93; LR 4 Ch App 701; Lagunas Nitrate 
2 Ch 392, 435. Keay writes that this is typical of the general trend of opinion in the early cases: Andrew Keay, Directors’ Duties (Jordan Publishing, 2nd ed, 2014) 205 [8.16].
  VicRp 57;  VR 443. The case involved allegations that a director allowed misleading statements to appear in the annual reports (as well as failing to check account books regularly and permitting unauthorised borrowings).
 Ibid 450. The Full Court cited Romer J’s judgment as authority that a director, in discharging the duties of his office, must act honestly and must exercise such degree of both skill and diligence as would amount to the reasonable care that an ordinary man might be expected to take in the circumstances if acting on his own behalf.
 Ibid. The Court said:
For Romer J, the test of an honest director’s liability was whether or not it could be said of him that he had been negligent, that is to say that he had failed to exercise such skill and diligence as it was reasonable to expect of him in the circumstances. And the legislature, in the sub-section though it has omitted the requirement of skill which forms part of the concept of ‘reasonable care’, has clearly enough followed Romer J, by limiting the requirement of diligence which it imposes to what may reasonably be expected of the director under the circumstances’.
 See Re City Equitable  Ch 407, 427; Byrne v Baker  VR 433, 450. J Rodd, commenting after Menzies’ paper at the Eleventh Legal Convention of the Law Council of Australia (see above n 65, 170) said:
There are many technically brilliant men on boards of companies who have little or no judgment when it comes to financial or commercial problems, and the converse also applies. On the other hand, there are directors of proprietary companies who have no interest in doing other than passing the resolutions which their tax advising lawyers and accountants prepare for them. It is too much to expect that we will be able to lay down standards of ability, judgment and foresight which will meet all the varying circumstances of company directorships. The next stage would be to penalize directors if they did not make a stipulated amount of profit in each year’.
  VR 433, 453. In Byrne v Baker, it was alleged that the defendant director ‘between 3 May 1960 and 21 June 1962 ... being a director of [the company] did not at all times use reasonable diligence in the discharge of the duties of this office’. A number of separate acts and omissions were then specified: at 444. The charge was held bad for duplicity — the Full Court held that an offence under s 107 could only be constituted by an identifiable act or omission.
 This was based on the second of Romer J’s propositions outlined above. The Court in Byrne v Baker  VR 433, 451 pointed out that Romer J was concerned to determine how far each of the directors of the company could be held responsible for various losses that the company had suffered — Romer J took each loss in turn and then considered the position of each director in turn to determine whether or not it could be said of him that he had been guilty of an act or omission amounting to negligence, which was a cause of the loss in question. See also Australian Securities and Investments Commission v Maxwell  NSWSC 1052; (2006) 59 ACSR 373, 410  (‘ASIC v Maxwell’).
  VicRp 70;  VR 523.
 Ibid 534.
 Daniels v Anderson (1995) 37 NSWLR 438, 501; Vrisakis v Australian Securities Commission (1993) 9 WAR 395, 405.
 Daniels v Anderson (1995) 37 NSWLR 438, 500–1.
 Deputy Commissioner of Taxation v Clark  NSWCA 91; (2003) 57 NSWLR 113, 140 ; see also Australian Securities and Investments Commission v Rich  NSWSC 1229; (2009) 236 FLR 1, 132  (‘ASIC v Rich’); Australian Securities and Investments Commission v Ingleby  VSCA 49; (2013) 39 VR 554, 575  (‘ASIC v Ingleby’). In terms of the final element of Romer J’s outline (concerning trusting officials in the absence of grounds for suspicion), modern law allows reasonable delegation and reliance subject to certain requirements.
 See Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115, 126; ASIC v Healey  FCA 717; (2011) 196 FCR 291; see also ASIC v Rich  NSWSC 1229; (2009) 236 FLR 1, 133 .
 For interpretation see, eg, ASIC v Maxwell  NSWSC 1052; (2006) 59 ACSR 373, 397 ; ASIC v Macdonald (No 11)  NSWSC 287; (2009) 230 FLR 1, 53 ; ASIC v Rich  NSWSC 1229; (2009) 236 FLR 1, 131 ; Shafron v ASIC  HCA 18; (2012) 247 CLR 465, 476 .
  Ch 407, 468–9, 474. The Greene Committee referred to this as ‘the common article’ and also outlined another form of article (citing Re Brazilian Rubber Plantations and Estates Ltd  UKLawRpCh 138;  Ch 425) that had become common and went even further in exempting directors in every case except that of actual dishonesty: see Board of Trade, United Kingdom, ‘Report of the Company Law Amendment Committee 1925–1926’ (Command Paper 2657, 1926) 19 .
 See Board of Trade, United Kingdom, Command Paper 2657, above n 129, 20 ; see also Matthew Conaglen, ‘Interaction between Statutory and General Law Duties Concerning Company Director Conflicts’ (2013) 31(7) Company and Securities Law Journal 403, 414.
 See Board of Trade, United Kingdom, Command Paper 2657, above n 129, 19 . Interestingly, in light of the debate surrounding s 116(2) of the 1896 Act (outlined in Part II above), the Committee thought that prohibiting exemption clauses ‘would not cause any hardship to a conscientious director or make his position more onerous’ and also thought there was ‘no foundation whatever for the suggestion that it would discourage may [sic] otherwise desirable persons from accepting office’: at 20 .
 Ibid 21 .
 See also Jason Harris, Anil Hargovan and Janet Austin, ‘Shareholder Primacy Revisited: Does the Public Interest Have Any Role in Statutory Duties?’ (2008) 26(6) Company and Securities Law Journal 355, 361.
 Corporations Act pt 9.4B.
 This has been the position in most common law jurisdictions for many years: Foss v Harbottle  EngR 478; (1843) 2 Hare 461; 67 ER 189.
 Part 2F.1A of the Corporations Act was inserted in 1999 and enables shareholders and other eligible applicants to bring legal proceedings on behalf of a company where the company is unwilling or unable to do so itself. Similar provisions were introduced in the UK in 2006: Companies Act 2006 (UK) c 46, s 260.
 For discussion of the enforcement regimes available in the United States and Australia, see Renee M Jones and Michelle Welsh, ‘Toward a Public Enforcement Model for Directors’ Duty of Oversight’ (2012) 45(2) Vanderbilt Journal of Transnational Law 343. See also Andrew Keay, ‘The Public Enforcement of Directors’ Duties: A Normative Inquiry’ (2014) 43(2) Common Law World Review 89; Andrew Keay, ‘An Assessment of Private Enforcement Actions for Directors’ Breaches of Duty’ (2014) 33 Civil Law Quarterly 76. The UK duty of care is contained in s 174 of the Companies Act 2006 (UK) c 46. There is no public enforcement of this provision. However, s 8 of the Company Directors’ Disqualification Act 1986 (UK) c 46 (‘CDDA Act (UK)’) may have played a role in reducing the need for a publicly enforceable statutory duty of care because it allows a public regulator to seek disqualification orders for periods up to 15 years against directors who are found to be unfit after their companies have been subject to investigation. However, a 2014 study of all of the disqualification orders made between 2008 and 2013 under the CDDA Act (UK) reveals that during this period, most disqualification orders were imposed on directors of insolvent companies or on directors who had committed a criminal offence. While some directors were disqualified under s 8, the number of such disqualifications decreased markedly in recent years: Andrew Keay and Michelle Welsh, ‘Enforcing Breaches of Directors’ Duties by a Public Body and Antipodean Experiences’ (2015) 15(2) Journal of Corporate Law Studies 255. In addition, the other punitive order available under the Australian civil penalty regime, namely the pecuniary penalty, is generally not available in the UK.
 See Michael C Jensen and William H Meckling, ‘Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure’ (1976) 3(4) Journal of Financial Economics 305; Eugene F Fama and Michael C Jensen, ‘Agency Problems and Residual Claims’ (1983) 26(2) Journal of Law and Economics 327; Eugene F Fama and Michael C Jensen, ‘Separation of Ownership and Control’ (1983) 26(2) Journal of Law and Economics 301. This scholarship can trace its origins to the 1932 work of Berle and Means on public companies and the separation of ownership and control: Adolf A Berle and Gardiner C Means, The Modern Corporation and Private Property (Transaction Publishers, 1st ed, 1932) and to the 1937 work by Coase on the costs of market transactions and the reduction of those costs by firm organisation: R H Coase, ‘The Nature of the Firm’ (1937) 4 Economica 386. For discussion on the influence of the work of Berle and Means and Coase on corporate law scholarship, see Kent Greenfield, The Failure of Corporate Law: Fundamental Flaws and Progressive Possibilities (University of Chicago Press, 2006); Michael Whincop, ‘Of Fault and Default: Contractarianism as a Theory of Anglo-Australian Corporate Law’  MelbULawRw 5; (1997) 21(1) Melbourne University Law Review 187.
 See Greenfield, above n 139, who argues that the nexus of contracts approach adopts a private view of companies and corporate law. See also Daniel R Fischel, ‘The Corporate Governance Movement’ (1982) 35(6) Vanderbilt Law Review 1259, 1273; Henry Hansmann and Reinier Kraakman, ‘The End of History for Corporate Law’ (2001) 89(2) Georgetown Law Journal 439, 447: ‘[F]ew would assert that giving the state a strong direct hand in corporate affairs has much normative appeal’.
 Michael J Whincop and Mary E Keyes, ‘Corporation, Contract, Community: An Analysis of Governance in the Privatisation of Public Enterprise and the Publicisation of Private Corporate Law’  FedLawRw 2; (1997) 25(1) Federal Law Review 51.
 Ibid 54.
 Ibid 87.
 Ibid 88.
 Michelle Welsh, ‘Realising the Public Potential of Corporate Law: Twenty Years of Civil Penalty Enforcement in Australia’ (2014) 42(1) Federal Law Review 217.
 Ibid 234.
 Ibid 234–5.
 See generally Australian Securities and Investments Commission v Adler [No 5]  NSWSC 483; (2002) 42 ACSR 80, 97–8  (Santow J) (‘ASIC v Adler [No 5]’) where his Honour referred to Australian Securities Commission v Roussi  FCA 618; (1999) 32 ACSR 568, 570–1; Australian Securities and Investments Commission v Papotto  WASC 201; (2000) 35 ACSR 107, 112; Australian Securities and Investments Commission v Hutchings  NSWSC 522; (2001) 38 ACSR 387, 395; Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd  NSWSC 310; (2002) 41 ACSR 561; Australian Securities Commission v Forem-Freeway Enterprises Pty Ltd (1999) 30 ACSR 339, 349–50; Australian Securities Commission v Donovan  FCA 986; (1998) 28 ACSR 583, 602 (‘ASC v Donovan’).
 See also ASIC v Adler [No 5]  NSWSC 483; (2002) 42 ACSR 80, 97–8  (Santow J) where his Honour referred to Australian Securities Commission v Nandan (1997) 23 ACSR 743, 751.
 In relation to disqualification orders, see Australian Securities and Investments Commission v Rich [No 2]  NSWSC 186; (2003) 44 ACSR 682; Australian Securities and Investments Commission v Plymin (No 2) (2003) 21 ACLC 1237, 1241–2 –. See also Australian Securities and Investments Commission v White  VSC 239; (2006) 58 ACSR 261, 265–7 ; Australian Securities and Investments Commission v Vines  NSWSC 760; (2006) 58 ACSR 298, 311–7 –, , 333 –, 346 –; ASIC v Maxwell  NSWSC 1052; (2006) 59 ACSR 373, 411 ; Australian Securities and Investments Commission v Beekink  FCAFC 7; (2007) 238 ALR 595, 604–5 –. In relation to pecuniary penalty orders see ASIC v Adler [No 5]  NSWSC 483; (2002) 42 ACSR 80; ASC v Donovan  FCA 986; (1998) 28 ACSR 583; Trade Practices Commission v CSR Ltd (1991) ATPR 41-076.
 Welsh, above n 145, 237–8.
 Ibid 239–40.
 See above n 94 and accompanying text.
 ASIC v Macdonald (No 11)  NSWSC 287; (2009) 230 FLR 1; Morley v ASIC  NSWCA 331; (2010) 247 FLR 140; Shafron v ASIC  HCA 18; (2012) 247 CLR 465; ASIC v Hellicar (2012) 247 CLR 345.
 ASIC v Healey  FCA 717; (2011) 196 FCR 291.
 Adler v ASIC (2003) 179 FLR 1.
 Australian Securities and Investments Commission v Vines  NSWSC 738; (2005) 55 ACSR 617.
 ASIC v Ingleby  VSCA 49; (2013) 39 VR 554; Australian Securities and Investments Commission v Lindberg  VSC 332; (2012) 91 ACSR 640.
 Australian Securities and Investments Commission v Rich  NSWSC 836; (2004) 50 ACSR 500.
 For discussion of a number of these cases and the merits of ASIC using s 180(1) to establish personal liability by company directors and officers based on the company contravening the Corporations Act, see Abe Herzberg and Helen Anderson, ‘Stepping Stones — From Corporate Fault to Directors’ Personal Civil Liability’  FedLawRw 8; (2012) 40(2) Federal Law Review 181.
 Austin and Ramsay, above n 97, [8.305.18].
 Australian Securities and Investments Commission, Media Centre <http://asic.gov.au/about-asic/media-centre/> .
 ASX Corporate Governance Council, Corporate Governance Principles and Recommendations
(3rd ed, 2014).
 Ibid 18.
 ASX Corporate Governance Council, Corporate Governance Principles and Recommendations
(2nd ed, 2007) 19.
 ASX Corporate Governance Council, Principles and Recommendations, above n 163, 18.
  FCA 717; (2011) 196 FCR 291.
 Australian Securities and Investments Commission v Healey (No 2)  FCA 1003; (2011) 284 ALR 734, 764 .
 Ibid 765 .
 According to its website, the AICD is an organisation for directors that engages in governance education, director development and advocacy. It has a membership of more than 36,000 that includes directors and senior leaders from business, government and the not-for-profit sectors.
See Australian Institute of Company Directors <http://www.companydirectors.com.au> .
 Australian Institute of Company Directors, ‘Statement from Company Directors on James Hardie Judgment’ (Media Release, 3 May 2012) <http://www.companydirectors.com.au/general/header/media/media-releases> .
 Ibid. For other examples, see Australian Institute of Company Directors, ‘Centro Case Highlights Directors’ Responsibilities’ (Media Release, 31 August 2011) <http://www.companydirectors.com.au/
The AICD said that the judgment in ASIC’s civil penalty application against the directors of Centro ‘highlights important issues for the director community and provides a reminder of the significant responsibilities that come with the role of director’.