Friday, 19 August 2011

Australia: section 1324 of the Corporations Act (2001)

Earlier this year the operation of Section 1324 of the Corporations Act (2001) was considered in the Queensland Supreme Court (Trial Division) by Justice Keiran Cullinane AM: see Phoenix Constructions Queensland Pty Ltd v Coastline Constructions Pty Ltd and McCracken [2011] QSC 167Section 1324 provides, in summary, the court with the power to grant an injunction where a person (including a director) has engaged, is engaging, or is proposing to engage, in conduct that would constitute a contravention of the 2001 Act. An application for an injunction can be made by ASIC or the person (including creditors) whose interests have been or would be affected by the conduct. The court has the power to order that damages are paid instead of, or in addition to, the grant of the injunction.

What makes the Phoenix case noteworthy is that the trial judge ordered that a company director should pay damages to one of the company's creditors under Section 1324 of the Corporations Act 2001 in respect of a breach of one of the statutory duties owed by the director not to the creditor but to the company: Section 182 of the 2001 Act, titled 'Use of position - civil obligations', which provides that a company director must not improperly use his position to (a) gain an advantage for himself or someone else; or (b) cause detriment to the company. The trial judge held that the director had breached Section 182 when he deprived the company of certain property under a joint venture agreement and benefited his wife.

An appeal will be heard later this year, in which one of the arguments will be that the trial judge was wrong to find that Section 1324 conferred upon the creditor a cause of action in respect of a breach of duty owed by the director to the company. The date of the appeal hearing will be published here.

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