Directors duties to creditors and creditors actions under the Corporations Act

The Queensland Supreme Court has delivered a judgment which focuses on directors duties to creditors under s182 of the Corporations Act 2001 (Cth) (the Act) and creditor's actions under s1324 of the Act. In Phoenix Constructions Queensland Pty Ltd v Coastline Constructions (Aust.) Pty Ltd and Michelle McCracken and Jarrod McCracken (2011) 84 ACSR 562;[2011] QSC 167, Cullinane J considered whether a creditor could bring an action against a director under s1324 of the Act seeking an injunction and/or damages.

His Honour held that:

• a creditor has standing under s1324 as a 'person whose interest have been affected' by conduct in contravention of the Act and accordingly, could sustain an action for an injunction and/or damages against a director for breach of s182;
• it was not necessary that the injunction be sought when proceedings were commenced, but was sufficient that the plaintiff had sought injunctive relief from the time when the third defendant (the director of the company) was added as a party; and
• the court could award damages in lieu of an injunction under s1324 even in circumstances where an injunction would be refused on discretionary grounds.

This decision is the first in which a creditor has been awarded damages under s1324 and demonstrates that while directors will generally not owe a duty directly to creditors (except where the company is nearing insolvency), directors may be personally liable to creditors in the performance of their statutory duties under the Act. Practitioners must be aware when advising director or creditor clients, that creditors potentially have recourse directly against directors to restrain conduct in breach of the Act and/or to seek damages for loss suffered as a result of such contraventions.

It is important to note that the third defendant, Mr. McCracken, has now appealed this decision. While dealing with an application by Phoenix for security of costs in relation to the appeal, Wilson AJA noted that the appeal was arguable.

 

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