Do you know your Duties as a Company Director?

If you are the director of a company, understanding your legal obligations is not only important but integral to the sound, legal and ethical governance of your organisation.

A director holds a position of high authority and is entrusted to accurately determine the affairs of company and make informed decisions about its future. To achieve this, directors are legally required to abide by a set of duties and responsibilities as outlined in the Corporations Act 2001.

Therefore, one of the key responsibilities of directors is to be fully informed and aware of what their duties and liabilities are to ensure the lawful and successful operation of their company.

So, what are the main duties owed by a director of a company?

1. Duty to Act in Good Faith and for Proper Purpose

As a director you must act in the best interests of the organisation which requires a director to act honestly, ethically and fairly with a view to benefiting the interests of the company. In accordance with section 180 of the Corporations Act, a director, when making decisions, must place the interests of the organisation above their own and importantly for ‘proper purposes’.

2. Duty to Act with Reasonable Care, Skill and Diligence

This duty requires a director to act with a degree of care, skill and diligence that a reasonable person might be expected to show in the role. This means that a director must discharge their duties and exercise their powers with the same care and skill that a reasonable person would exercise if they were a director of a company in the same circumstances with the same responsibilities and expertise.

3. Duty Not to Improperly Use Information or Position

Under section 183 of the Corporations Act, directors must not use the information they gain in their role as director or use their position of power to benefit themselves or gain a personal advantage. Additionally, if a director uses information or their position to cause detriment to the company then a director may be liable for breaching their duties under the corporation legislation.

4. Duty to Avoid Insolvent Trading

This is a key duty of directors who must ensure that the company does not trade while insolvent. Under s588G of the Corporations Act, a director will be deemed to have breached their duty if either the company is or becomes insolvent because of a debt and at the time of the debt, a reasonable person would have known or ought to have known that insolvency was likely. The consequences for breaching this duty are significant and include both civil and criminal penalties.

5. Duty to Avoid Conflicts of Interest

Situations which involve a conflict of interest is not an uncommon occurrence in the day-to-day experiences of a director. Simply, a conflict of interest occurs when a director’s personal interests collide with the best interests of the organisation. To avoid such a conflict, it is a director’s duty to place the interests of the company above their own. To ensure a director fulfills this obligation, section 191 of the Corporations Act requires all directors to disclose their personal interest.

Getting the right advice from an expert at Auslex Law Group

As the consequences of breaching director’s duties are significant it is important that directors are informed about both the affairs of the company and the legislation which reflects good corporate governance. Continual compliance with all director responsibilities is essential to avoiding breaching the numerous obligations imposed.

If you need assistance in understanding the role of directors, our experienced commercial litigation team are here to help.

Furthermore, in the event you are accused of breaching your duties as a director, seeking expert advice is essential to ensure your personal rights are protected.