A company director has specific duties within their role, in order to ensure that they act in the best interest of the company. The role of company director is to manage internal and external interests of the company to various stakeholders.
Where are Company Director Duties Found?
The duties are predominantly found in legislation (Corporations Act 2001 (Cth)), as well as in case law. A company may also add additional duties in their constitution or other company agreements.
Who Do Company Director Duties Apply To?
- Officially appointed directors (the company director)
- Shadow directors (unofficially appointed but legally viewed as influential to the company) please seek legal advice for more details
- De-facto directors (acting as a company director) please seek legal advice for more details
What Are Company Director Duties?
Please note that some of the duties may overlap as they are to be complied with holistically.
- Acting in Good Faith
This means that a company director should act in the best interest of their company, making decisions and conduct honestly and faithfully.
- In the Company’s Interest
Similarly to acting in good faith, a company director should vote and act in the interest of the company.
- Lodging Documentation to ASIC
A company director is required by law (Corporations Act) to lodge documents to ASIC, including financial reports.
- Managing Conflicts of Interest
If a company director has a personal interest in a company dealing, they are required to disclose this interest and potentially abstain from voting or vote in the interest of the company only. This is known as a director’s fiduciary duty to prioritise the interest of the company.
- Avoiding Conflicts of Interest/Improper Use of Position
A company director must not abuse their position to make decisions that would benefit a personal gain rather than a company benefit. Improper use of position can also include improper use of information that a director can have access to. Similarly to the above, a director must avoid conflicts of interest and disclose it if the situation is unavoidable.
- Refraining from Trading When Insolvent
The company director must ensure that if the company is insolvent it refrains from trading.
- Reporting Finances
It is the duty of the company director to ensure that the financial situation of the company is recorded and reported adequately.
- Reasonably Relying on Information
A degree of reasonable reliance on information should be exercised by company director’s if needed. This means that information provided by colleagues, employees, professional experts or other relevant sources can be relied on if the source is reliable and can assist the company.
What are the Consequences for Non-Compliance?
If a company director does not comply with their duties, there can be both civil or criminal actions taken. They can also be disqualified from their position as company director.
A company director can be imprisoned for a maximum sentence of fifteen years if the duties are breached recklessly and dishonestly.
A company director can have legal civil action against them by stakeholders or the company itself. There are also monetary penalties depending on if the director receives a benefit from their breach or misconduct (such as three times this amount or a maximum of $1,050,000).
It is essential that a company director complies with their relevant required duties and clarifies any misunderstandings or confusions surrounding them to avoid legal consequences. For more information or assistance, get in touch with our team via the contact form or by calling 1300 337 997.