Good faith, use of position and use of information

– section 184 of the Corporations Act 2001

Good Faith, Use of Position and Use of Information
This offence relates to duties of directors and employees within a company. It is an offence to act dishonestly within these roles. It is also an offence to act against the best interests of the company, to do something outside of your role, or fail to act within your role.

Examples of Good Faith, Use of Position and Use of Information
  • A director of a company uses his position to engage another company, to gain a luxury holiday for himself and his family.
  • A director of a company uses the company trust to finance a new home.
  • An employee of a company provides confidential documents to a competitor.
Questions in cases like this
  • What do they think you did?
  • What did you actually do?
  • Were you acting dishonestly?
  • Did you gain personally from your actions?
  • Did your actions cause the company to lose anything?
  • Were you acting within your role?
Maximum penalty and court that deals with this charge

This charge may be heard in either the Magistrates’ Court or the County Court. The maximum penalty for the offence of breaching Good Faith, Use of Position and Use of information is 15 years imprisonment.1 The maximum penalty was recently increased following the Financial Services Royal Commission’s final report. Please keep in mind that the maximum penalty is reserved for cases involving the most serious forms of offending.
 

“Were you dishonest?”

 

The elements of each offence

In order for an accused to be proven guilty of an offence listed in section 184, the following elements must be established in court beyond a reasonable doubt:

For Good Faith – Directors and Other Officers – s 184(1)

  1. The accused must have been a director or officer of a corporation.
  2. The accused had been reckless or had been dishonest.
    • It has been held that if the accused was dishonest, this must have been intentional dishonesty.2
  3. The accused failed to exercise their powers and to discharge their duties in good faith in the best interests of the corporation or for a proper purpose.

ICAC has stated that ‘this section effectively provides criminal sanctions for a contravention of the statutory obligation imposed on directors and officers of a corporation by s 181 of the Corporations Act.’3
 

 
For Use of Position – Directors, Other Officers and Employees – s 184(2)

  1. The accused was a director, officer, or employee of a corporation; and
  2. The accused used their position dishonestly with the intention of directly or indirectly gaining an advantage for themselves, or someone else, or causing detriment to the corporation; or
  3. The accused used their position recklessly to result in themselves or someone else directly or indirectly gaining an advantage, or in causing detriment to the corporation.

For Use of Information – Directors, Other Officers and Employees – s 184(3)

  1. The accused obtained information because they were, or have been, a director or other officer or employee of a corporation; and
  2. The accused used the information dishonestly with the intention of directly or indirectly gaining an advantage for themselves, or someone else, or causing detriment to the corporation; or
  3. The accused used the information recklessly as to whether the use may result in themselves or someone else directly or indirectly gaining an advantage, or in causing detriment to the corporation.

Case example of 184(3): In Castrisious v McManus [1991] 9 ACLC 287, the director of a company became aware that it was about to be liquidated. In seeking to protect himself and some fellow associates, the director diverted funds belonging to the company to discharge debts owed by himself and the fellow associates. These debts had been incurred so that the borrowed money could be on-lent to the company. This action by the director was to the detriment of creditors of the company and as a consequence, he was convicted of making improper use of information acquired as a director under s 184(3).4

Dishonesty will be interpreted as ‘dishonest according to the standards of ordinary people’.5

What are some of the possible defences to a charge of Good Faith, Use of Position and Use of Information?
  • You were not intentionally or recklessly dishonest.
  • You acted in the best interests of the company.
  • You acted for a proper purpose.
  • You did not gain anything for yourself or someone else.
  • You did not cause a detriment to the company.

There are other possible defences, depending on the circumstances surrounding the alleged offending. Each matter is unique and requires an individual approach and strategy.

The Corporations Act was amended recently to clarify that it is not a defence if the person uses their position (184(2)) or information (184(3)) with the result or intention of gaining an advantage for the corporation itself.6

Sentencing in the higher courts

In Victorian higher courts, 14 charges of Use Position Dishonestly to Gain Advantage – Corporations Act 2001 (Cth) section 184(2) were heard from 1 July 2013 to 30 June 2018. Majority of these charges resulted in Imprisonment (57.1%) although there were also some that led to Partially Suspended Sentences (35.7%) and Wholly Suspended Sentences (7.1%).7

Please note that suspended sentences were abolished in the higher courts earlier than that of the Magistrates’ Court, and therefore all offences committed on or after 1 September 2013 will not have this available as a sentencing option.8

Other important resources

 



[1] Corporations Act 2001 (Cth) Sch 3.
[2] Duncan v Independent Commission Against Corruption [2016] NSWCA 143 at [375].
[3] Duncan v Independent Commission Against Corruption [2016] NSWCA 143 at [375].
[4] Phillip Lipton, Abe Herzberg and Michelle Welsh, Understanding Company Law (Thomas Reuters, 19th ed, 2018) 518.
[5] Corporations Act 2001 s 9.
[6] Corporations Act 2001 s 184(2A).
[7] Sentencing Advisory Council. “SACStat Higher Courts – Corporations Act 2001 (Cth): s 184(2) – use position dishonestly to gain advantage.” SentencingCouncil.vic.gov.au. https://www.sentencingcouncil.vic.gov.au/sacstat/higher_courts/HC_CCOR_184_2.html (accessed October 22, 2019).
[8] Sentencing Advisory Council. “Abolished Sentencing Orders.” SentencingCouncil.vic.gov.au. https://www.sentencingcouncil.vic.gov.au/about-sentencing/abolished-sentencing-orders (accessed October 22, 2019).