QUESTION 6

What is a shadow director?

a/According to s 9 of the CA, a director must be appointed to be a director, and therefore any other person, who is not appointed, is not a director and referred to as shadow director

b/Shadow directors are those directors who are absent from the company

c/The definition of a director is any person who is able to exert significant influence over the decisions made by the board of directors and the appointed directors are accustomed to following that person's instruction.

d/ Shadow directors are directors, who assist the board of directors

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QUESTION 7

Why was the Buzzle case so significant?

The Buzzle case determined that any person, who attends a board meeting, if not appointed as a director, must be a shadow director

The Buzzle case established that it is easy to show that a person has influenced the board of directors and consequently be determined to be a shadow director

A shadow director is very different to a de facto director so that they may not be liable as a director, if found to be a de facto director

The Buzzle case indicated that a shadow director might be proved only on the grounds that the majority of directors had been influenced by the particular shadow director

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QUESTION 8

Which of the following is correct as to statutory law and common law that applies to companies?

Common law has a separate set of principles to statute

Statute replaces common law; the corporations legislation has now superseded all previous common law

Statutory law is often a codification of pre-existing common law; The statutory law often therefore reinforces the common law principles

Statutory law refers to legislation and is applied separately and is distinct from the common law, otherwise known as case law

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QUESTION 9

Do the directors have a direct duty to creditors of the company?

a/There is a specific duty to consider the interests of creditors when directors are making business decisions on behalf of a company

b/Directors are under a fiduciary duty to consult with creditors before undertaking significant financial decisions, which may affect the profitability of the company

c/One of the prime duties of directors is to treat creditors on the same basis as members; creditors can similarly direct the directors on how they run the company

d/If the directors allow a company to trade while insolvent, and without a reasonable belief that the company can pay its creditors, the directors will be personally liable to the creditors under s 588G

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QUESTION 10

A prime duty placed on directors is a duty to avoid a conflict of interest...

a/Conflicts of interest are a normal part of being a director; only a very serious conflict of interest must be disclosed to members or other directors: Bray v Ford

b/Whenever there is a conflict of interest between the personal interests of a director and their duty to the company, the director must either disclose that conflict or step aside from the decision

c/ The duty of no conflict of interest is not a fiduciary duty. It is a statutory duty

d/ There is a conflict of interest, if a director is due to make a profit. Indirect profits, however, will not amount to a conflict of interest

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QUESTION 11

What is a conflict of interest? Which of the following is correct?

a/ Conflicts of interest can arise in various ways, through diversion of business opportunities, misappropriation of property or secret profits.

b/ The Corporations Act does not cover conflicts of interests; this is purely an equitable issue

c/ The making of secret profits is a breach of fiduciary duty. The breach of any other duty is a breach of contract and dealt with under contract law

d/ A conflict of interest can only arise, if the business opportunity in question has a monetary value