Generally, directors do not owe a direct duty to
creditors. Directors owe a duty to a company to consider the
interests of creditors including the ability of the company to
repay them. Thus, often a liquidator or a receiver of a
company will cause the company to sue directors for breaches of
Phoenix Constructions Qld Pty Ltd v Coastline Constructions
Pty Ltd and McCracken QSC167 may allow creditors
recourse directly against the director. Section
1324 Corporations Act allows a person whose
interests have been affected by conduct of a company which would
contravene the Corporations Act, or by accessorial acts pertaining
to a contravention, to seek an injunction restraining the person
from engaging in the conduct. If the Court considers it
desirable to do so, it can require the person to do any act or
thing. By section 1324(10), where the Court has power to
grant an injunction under the section, the Court may in addition or
in substitution, order that a person pay damages to any other
In this case, the ex-Bulldog's rugby league star Jarrod
McCracken was found by the Queensland Supreme Court to have caused
a company in which he was a director to have acted
improperly. The Court found he caused the company to amend a
joint venture agreement with McCracken's wife, and thereby
effectively dissipated available assets to the prejudice of a
building company which worked on the joint venture's
development site. This was improper conduct under section 182
of the Act because it caused detriment to the corporation, and
gained an advantage to Mrs McCracken (who owned the
Cullinane J of the Supreme Court of Queensland found:
as an injunction was sought when McCracken was added as a party
to the proceedings, that was sufficient to maintain the claim for
It was sufficient if a right for an injunction had accrued
before hearing of the suit, even if at the time of commencement
there was no right to an injunction or specific performance.
the statutory power of awarding damages subsisted whenever at
the material time the contract was susceptible to specific
performance, or protection by an injunction, whether or not the
relief might be refused on discretionary grounds.
Accordingly, McCracken was liable for significant damages with
statutory interest. The decision is apparently on appeal.
Lessons from the case
Directors should be aware that any impropriety may be met by a
claim in damages directly against them; they cannot rely on a
liquidator without funds failing to institute proceedings when a
creditor can potentially go directly against them.
The drafting of Court process by a creditor needs to be
skilfully thought through, to bring the creditor within section
1324 Corporations Act 2001.
However, if this is genuinely achievable, creditor
redress against the director is significantly enhanced.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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