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The Liability Side of Corporate Governance

Introduction

Whereas directors of the Australian companies have a discrete autonomy to make investment decisions or expand their corporations, due to certain market demands, the laws of corporate governance are decisive.1 In a certain corporate scenario, departmental technologists discovered a fuel additive that could be efficient in the automotive industry. The technologist carried out trials and realized that the fuel additive would bring considerable improvements to the automotive sector.

In anticipation, the company is seeking to create a subsidiary corporation to manufacture and commercialize the fuel additive. Commercial manufacturing of this product may be highly lucrative, although any inappropriate handling of this product may be detrimental to humans. Concerning this scenario, this essay explores the principle of limited liability to determine the authenticity and appropriateness of commercializing the fuel additive.

The Doctrine of Limited Liability in the Case

In Australian criminal law, the principle of corporate liability defines the legal actions that a corporate organization, as an independent legal entity, may face when it fails to protect and control its employees, or when it omits the rights of its workers.2 Commercialization of the fuel additive may be a lucrative venture that may assist the company and its workers economically. Nonetheless, investing in this profitable endeavor may lead to a breach of the limited liability principles encompassed in Australian criminal law. A reckless decision about the formation of a subsidiary company to commercialize the fuel additive may breach the Corporations Act 2001.3

This Act outlines the principles of proper usage of powers and duties that all workers must understand. As a civil obligation, the Corporations Act 2001 requires directors, officers, and employees to act carefully and diligently.4

The Corporations Act 2001 Part 2D.1, section 180 requires all the directors and the top officers of a corporation to carry out their powers and undertake their official responsibilities with great caution and diligence.5 If the director of the company remains persuaded to venture into the fuel business without proper consideration of its environmental and human risks, the intended investment will remain a case of culpable ignorance. The investment aimed towards the commercialization of the fuel additive has some foreseeable risks and it requires the directors of this corporation to undertake a proper consideration of the predictable risks. Directors are among the decision-makers of corporate investment. The Australian law and the Corporations Act 2001 require directors to make appropriate business decisions.6

The principles of limited liability found in the Corporations Act 2001 consider a business decision to be appropriate when a corporate director makes a business judgment in good faith, and with a proper purpose or intention.7 A hurried decision to develop a subsidiary company to commercialize the fuel additive without proper consultations may remain considered as a business decision made for a personal material interest because the decision contravenes section 180 of the Corporations Act 2001. In the case of Vicarious Liability [2001], the judges held several defendants responsible for contributory negligence in different cases concerning foreseeable negligence.8

According to the jury, all citizens employed in corporate organizations, be they the leaders or subordinates, have the civil and statutory obligation to execute their duties and responsibilities while considering the foreseeable risks of their actions that may result from culpable negligence.9

Section 182 and section 183 of the Corporations Act 2001 outline the principles of limited liability and describe how directors, other officers, and employees must use their positions and how they should treat any information given to them.10 In case the subsidiary company results in considerable harm to humans, the director and the divisional technologists of the company will remain culpable for the violation of the civil obligations. As a civil obligation, section 182 and section 183 requires directors, secretaries, employees, and other officers employed by a corporation to avoid using their professional positions improperly.11 Improper utilization of work positions becomes eminently unlawful when workers use their positions to gain personal advantages or favor others.12 Workers have a civil obligation to protect their company and the reputation of their work positions.

Proper handling and use of information is a civil obligation for all workers of any corporate organization. Before considering the formation of a new subsidiary company, the top management officers responsible for making the investment decisions should consider the legitimacy of the information. Under the Corporations Act, 2001 section 183, improper use of information for personal gain or the advantage of another person is unlawful when it causes corporate harm.13

In the Australian legislation, the illegitimate intentions to form a subsidiary company to commercialize the fuel additive may breach the tort liability laws. The Australian tort laws imposed on the limited liability companies consider the directors liable for a civil offense when they contribute to risks that result from culpable ignorance.14 Irresponsible actions of corporate leaders are unlawful when they show evidence of prior knowledge about foreseeable harm.15

Concerning the breach of the principles of limited liability, several Australian case laws are relevant to this case. The case of the Australian Securities and Investments Commission v Macdonald is important to the events of this case.16 The case involved a director by the name of Mr. Macdonald, who failed to take considerable precautions against foreseeable harm that resulted from the asbestos products. The court found Mr. Macdonald, who was the company director, culpable for deliberate negligence. Macdonald breached the statutory duty of care after the complainants produced evidence of the initially ignored precautions.17 Damages that resulted from the reckless decisions that Macdonald made were intentional and the director was liable for his reckless business judgments.

Conclusion

The principles of limited liability are against the wrongful actions of a company committed through its workers and leaders. These principles are inherent in the legal Acts of the Australian constitution. The intentions of the directors and the divisional technologists to develop a subsidiary company that would commercialize a fuel additive that contains potential threats to humans are unlawful and inappropriate.

The Corporations Act 2001, sections 180 to185 requires directors, other corporate officers, and subordinates to perform their duties with the utmost diligence, care, and professionalism, and per the Australian legislation. Endorsing an investment decision for personal gain, or the benefit of other workmates or friends, is a provocative action against the Corporations Act 2001. Directors and workers should consider the foreseeable harm that may result from this venture.

Bibliography

Case Laws

Australian Securities and Investments Commission v Macdonald [2009] NSWSC 287.

Vicarious Liability [2001] QLRC 56.

Legislations

Corporations Act 2001(Cth).

Corporations Law (Cth).

Wrongs and Other Acts (Law of Negligence) Act 2003 (Cth).

Footnotes

  1. Corporations Law (Cth).
  2. Corporations Act 2001 (Cth).
  3. Corporations Act 2001 (Cth).
  4. Corporations Act 2001 (Cth).
  5. Corporations Act 2001 (Cth).
  6. Corporations Act 2001 (Cth).
  7. Corporations Act 2001 (Cth).
  8. Vicarious Liability [2001] QLRC 56.
  9. Vicarious Liability [2001] QLRC 56.
  10. Corporations Act 2001 (Cth).
  11. Corporations Act 2001 (Cth).
  12. Wrongs and Other Acts (Law of Negligence) Act 2003 (Cth).
  13. Corporations Act 2001 (Cth).
  14. Wrongs and Other Acts (Law of Negligence) Act 2003 (Cth).
  15. Vicarious Liability [2001] QLRC 56.
  16. Australian Securities and Investments Commission v Macdonald [2009] NSWSC 287.
  17. Australian Securities and Investments Commission v Macdonald [2009] NSWSC 287.

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OctoStudy. (2022, March 23). The Liability Side of Corporate Governance. Retrieved from https://octostudy.com/the-liability-side-of-corporate-governance/

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OctoStudy. (2022, March 23). The Liability Side of Corporate Governance. https://octostudy.com/the-liability-side-of-corporate-governance/

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"The Liability Side of Corporate Governance." OctoStudy, 23 Mar. 2022, octostudy.com/the-liability-side-of-corporate-governance/.

1. OctoStudy. "The Liability Side of Corporate Governance." March 23, 2022. https://octostudy.com/the-liability-side-of-corporate-governance/.


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OctoStudy. "The Liability Side of Corporate Governance." March 23, 2022. https://octostudy.com/the-liability-side-of-corporate-governance/.

References

OctoStudy. 2022. "The Liability Side of Corporate Governance." March 23, 2022. https://octostudy.com/the-liability-side-of-corporate-governance/.

References

OctoStudy. (2022) 'The Liability Side of Corporate Governance'. 23 March.

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