What duties do you have as a director of a company

[ Are you upholding your duties? ]
by Cameron Hancock Published

Directors of companies help grow and shape a business, ensuring compliance with the duties of their role in the process. These duties are long established and strict, reflecting the position of trust they hold in relation to the company.

Where are the duties set out?

The duties are codified in the Corporations Act (the legislation governing dealings with companies), in addition to additional duties set down in a company’s constitution.

Importantly, the duties imposed are owed not to the shareholders, but to the company itself. Notwithstanding this, there are provisions in the Corporations Act allowing a director to be held liable to stakeholders.

What are the duties?

Directors have the following duties:

  • to act in good faith in the best interests of the company;
  • to act with care and diligence;
  • to act for a proper purpose;
  • to not misuse their position or information obtained in their role as director, for their own or someone else's personal gain;
  • to avoid conflicts of interest;
  • to keep records of the company; and
  • to prevent insolvent trading.

Good faith and best interests of the company

A director must act honestly and for the benefit of all the company’s shareholders.

Where a director exercises their power for personal profit, they have failed to show good faith for the best interests of the company.

Due care and diligence

Directors must exercise their powers and duties with the care and diligence of a ‘reasonable person’.

There are various cases exploring what this includes. In making any determination, various circumstances specific to the company (including its size, type, nature of operating activities, board composition and responsibilities) are considered.

Importantly, where this duty has been breached by a director, the courts have found that such a breach can lead to the affected party bringing an action for negligence against the director.

Proper purpose

A director must exercise their power for a proper person (i.e. for the benefit of the company).

The court looks at both the ultimate purpose of the power provided to a director in determining whether it was used inappropriately or not and whether the purpose that specifically motivated the director is within the range of appropriate objects for that power.

Misuse of position or information

Directors must not use their position or information obtained in their role to gain a personal advantage to themselves (or a third party) or to cause detriment to the company.

This duty is in effect, notwithstanding that the actions may not have let to any advantage or detriment mentioned above. It also continues after the director ceases in their capacity as a director of the company.

Conflicts of interest

A director must disclose any material personal interests conflicting with that of the company (by way of notice to the company).

This includes any personal interests of the director themselves or third parties such as a director’s family.

Records of the company

Directors must ensure that the company keeps appropriate financial records, that accurately reflect transactions of the company and its current financial position.

Prevent Insolvent Trading

A director has the duty to ensure a company does not trade if it is insolvent (i.e. if it is unable to pay all its debts).

This duty extends so that a director must ensure that there are no circumstances indicating it is or is likely to be insolvent when incurring new debt.  

Clients acting as directors of companies should ensure they are comfortable understanding their duties as a director and seek specific advice in relation to their duties.   

For more information, please read ASIC’s information about directors duties.

If you would like us to assist you to ensure you are complying with your duties as a director and other compliance issues under the Corporations Act, please contact us.

General Advice Disclaimer

Information provided on this website is general in nature and does not constitute financial or legal advice. Every effort has been made to ensure that the information provided is accurate, but information may become outdated as legislation and new government announcements are made. Individuals must not rely on this information to make a financial, investment or legal decision as it does not take into account their personal circumstance. Before making any decision, we recommend you consult a licensed adviser or legal practitioner to take into account your particular objectives, circumstances and individual needs.

Cameron Hancock
read more by Cameron Hancock

Cameron is an experienced commercial lawyer with significant expertise in commercial property law. Cameron has a committed and commercial approach to transactions which has seen him secure the best possible commercial outcomes for his clients.

Cameron provides advisory, structuring and transaction services to a number of industries with specific focus on the agribusiness and real estate.

Cameron's clients are often involved in restructures, buying and selling businesses and commercial land.

Past projects Cameron has assisted with include: sales and purchases of leasehold and freehold shopping centres, large rural properties, hotels and motels and manufacturing enterprises from initial due diligence and contract negotiation stage to successful completion; agribusiness transactions; and Property developments, retail and commercial leasing.

Director of businessDEPOT Legal Pty Ltd 

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