The recent case of Re Australian International Yacht Club Pty Ltd [2021] NSWSC 586 considered whether directors had breached their statutory duties and fiduciary duties. The company was established to purchase a motorboat to provide services for a Chinese market, and to assist the plaintiffs to become permanent residents in Australia. One of the directors caused the company to buy a boat that was not registered for commercial use from a company that was owned by his wife. The boat was unsuitable for the proposed business, and sold to the company at an overvalue.

Consequently, the applicants sought a declaration under s 1317E of the Corporations Act 2001 that one of the directors breached the statutory and fiduciary duties owed under s 181 (duty to act in good faith) and 182 (duty not to improperly use their position). The applicants also sought orders that the director pay equitable compensation to the company and that the director pay compensation under s 1317H of the Corporations Act.

Furthermore, the applicants brought claims against the director’s wife and the company associated with the wife for knowing involvement of the breach of the statutory duty and knowing assistance in the breach of the fiduciary duty owed by the director to Australian International Yacht Club Pty Ltd.

The court held that the director’s breaches were dishonest and that the director’s wife, and her company by association, had knowing involvement and assistance in the breach. The court ordered equitable compensation to be made in respect of the purchase of the boat at an overvalue, but held that no order for compensation under s 1317H was necessary.

This case demonstrates the stringency of directors’ duties, and the potential for third parties involved to be held liable as well.

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