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ARTICLE · 15 DECEMBER 2011

Recent US case discusses the Business Judgment Rule

Cooper Grace Ward
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The rule is a defence for directors who fail to exercise their powers or discharge their duties with care and diligence.

AustraliaCorporate/Commercial Law
David Grace
David Grace
Charles Sweeney
Charles Sweeney
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The business judgment rule

The business judgment rule is a defence to breach of the statutory duty of care and diligence in section 180 of the Corporations Act. The Australian form of the rule is found in section 180(2) Corporations Act 2001 (Cth) and was derived from a common law doctrine of the United States.

The business judgment rule provides a defence for directors who fail to exercise their powers and discharge their duties with the required degree of care and diligence. A director may rely on the defence if they can establish that they:

  1. made the judgment in good faith for a proper purpose;
  2. did not have a material personal interest;
  3. appropriately informed themselves about the subject matter; and

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