Australia: Directors beware: Federal Court warns against diverting share trading opportunities

Directors often trade in shares in the companies that have appointed them, or carry out business activities in related fields. Many directors are familiar with the restrictions on share trading by key management personnel of ASX listed companies (as discussed in Andrew Lumsden's article on this subject).

However, in a recent decision,1 the Federal Court (Court) has provided an important reminder that directors of any company—listed or not—are prohibited from taking up opportunities which should properly have been made available to their companies.

The Court's decision continues the gradual tightening of restrictions on directors taking up external opportunities.


CellOS Software Limited (Company), an Australian unlisted public company, brought proceedings in the Federal Court against its former CEO and director, Mr Jason Huber (Huber).

Huber had been responsible for conducting capital raising to fund the Company's operations. Instead, however, he secretly bought 48 million of the Company's shares from early investors at a fraction of the prevailing market price. Huber then sold those shares to new investors for vastly higher prices. He obscured his conduct by holding the shares though a complex web of 47 offshore companies registered in opaque jurisdictions and by concealing his interest in these companies. The profits were used to loan funds back to the Company and for a range of personal matters such as discharging Huber's prior bankruptcy, Huber's personal expenses and the purchase of properties in Melbourne and Dubai.

The Court found that:

  • Huber 'promoted the Company shares to investors, ostensibly to raise capital directly for the Company by the issue of new shares, but in fact it was to sell to such investors the same shares, which Huber had purchased from early investors, at a considerable profit margin';
  • Huber's control and influence meant that he was the person making decisions about the timings of formal share offerings, yet 'on the side he was also the person running a scheme which was soaking up a class of investors who would otherwise have been likely to have been buying new shares issued by the Company';
  • Huber therefore diverted the opportunity for the Company to issue new shares by misusing his position as a director and, in doing so, improperly gained profits for himself; and
  • the loan arrangements between Huber's entities and the Company were detrimental to and not in the interests of The Company and Huber did not disclose his interest in these transactions.

Accordingly, the Court found that Huber breached his statutory and fiduciary duties to the Company, including:

  • not acting in good faith and in the best interests of the Company and for a proper purpose, in contravention of section 181(1) of the Corporations Act;
  • breaching a number of common law fiduciary duties (including not acting in the best interests of the Company, improperly using his position to gain advantage for himself, obtaining secret profits, not accounting to the Company for those secret profits, and acting contrary to the interests and to the detriment of the Company); and
  • the fact that Huber redirected part of the funds back to the Company through uncommercial debt arrangements only exacerbated the breach of fiduciary duty.


Putting aside insider trading issues, a director's share trading typically has nothing to do with their statutory or fiduciary duties because there is generally no diversion of any business opportunity for the company by such activity. A company is usually not in the business of buying and selling shares in itself.

However, where a director owes a particular fiduciary duty because of the scope and responsibilities of their role (here, Huber's role in fundraising activities for the Company) their duty is to facilitate that objective rather than to undermine it. In these circumstances, a director will breach their duties if they divert an opportunity from the company to themselves or their associates.

Having regard to previous decisions, the Court considered the following principles to explain which opportunities a director is prohibited from pursuing:

  • the corporation is financially able to exploit the opportunity (here the Company was capable of exploiting the opportunity to issue new shares);
  • the opportunity is within the corporation's line of business (here the Court held that a broad interpretation of 'line of business' should be taken, but in any case it was within or associated with the Company's 'line of business' to raise capital at the relevant time);
  • the corporation has an interest or expectancy in the opportunity (here the Company was clearly interested in new additional capital); and
  • by taking the opportunity for his own, the corporate fiduciary will thereby be placed in a position '[inimical] to his duties to the corporation' (here Huber's opportunity and knowledge came about because he was CEO and charged with responsibility for raising equity funding, and his duty was to create opportunities for direct equity capital raising by the Company rather than diverting them, thereby creating a 'blatant conflict').

Previously, Courts had only restricted directors from pursuing opportunities which derived solely from their role.

However, in recent decisions, these restrictions have expanded to include any opportunity obtained because of or using knowledge resulting from the director's role. This decision continues that new approach and applies it for the first time to a director's share trading in the Company itself.


Directors should carefully consider whether a proposed personal activity or opportunity:

  • conflicts with their companies' actual, contemplated or possible opportunities; and
  • derives from their particular responsibilities, insights and knowledge as a director.

The starker the contrast between the personal interest of a director and their duty to the company, the more likely a court will find pursuing it to be a breach of the director's duties.

If a director breaches their duties in this way, they will generally be required to account to the company for any profits made, as well as facing serious penalties.


1 CellOS Software Ltd v Huber [2018] FCA 2009.

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.

Chambers Asia Pacific Awards 2016 Winner – Australia
Client Service Award
Employer of Choice for Gender Equality (WGEA)

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
Email Address
Company Name
Confirm Password
Mondaq Newsalert
Select Topics
Select Regions
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions