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Creditors Awarded Damages after Director's Breach of Duty
Creditors Awarded Damages after Director's Breach of Duty

 

In the first reported decision of its kind, the Supreme Court of Queensland has awarded damages to a creditor against a director.

 


 

 

 

The Court considered an application under the Corporations Act 2001 for an injunction and/or damages by a creditor......

A creditor argued that the directors’ conduct resulted in a breach of directors’ duties under s182 of the Act, which provides that “(1) A director, secretary, other officer or employee of a corporation must not improperly use their position to (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation”.

It seems that during mediation the director taunted the creditor about his capacity to close the company down and hence defeat the creditor, even if they won the first action.

The court agreed with the creditors claim.

Not only was the conduct improper, the director had used his position to gain an advantage for his wife and he caused detriment to Coastline.

Directors must be warned that, if they breach a duty under the Act, they are opening themselves up to personal liability.

A direct link has now clearly been drawn between directors and creditors, with the effect that directors must consider the effect of their actions on creditors.

While the general rule is still that directors usually do not owe a duty directly to creditors, directors may be personally liable to creditors in exercising their statutory duties under the Corporations Act.



5th-April-2013