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Company Law News October 2011

More alarm bells for directors: the court orders a director to pay damages to a creditor

A recent decision of the Queensland Supreme Court under s1324 of the Corporations Act threatens to extend the liabilities of directors into fresh fields.

Section 1324 allows the Court, upon an application from ASIC or a person affected by the conduct complained of, to issue an injunction against a person and “order that person to pay damages to any other person.”

In the case at hand, Mr Jarrod McCracken was ordered under s1324 to pay damages to a creditor of his company for a breach of Mr. McCracken’s duties to the company as director.  

This is a novel development in corporations law, since directors have not previously been ordered to pay damages to third parties to whom they do not owe legal duties, such as creditors of a company.  Mr. McCracken’s appeal to the Queensland Court of Appeal will be watched with considerable anticipation by directors and practitioners alike.

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