From IrOBEX, 3.3.6.1, we can see below explanation for Flags bit 1:
1 Don't create directory if it does not exist, return an error instead.
The correct understanding should be: if bit 1 is set to 1, we'll not create
directory if it not exist; if bit 1 is set to 0, we'll create it if it not
exists.
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