Directors’ Duties

Company directors in Australia are required to comply with the directors’ duties set out in the Corporations Act 2001 and other documents such as shareholder agreements, director service agreements and company constitutions. Taylor Rose advises company directors who are unclear about these duties and assists when a director or shareholder believes that one or more of the directors is in breach of their duties.

Directors’ duties under the Corporations Act

The Corporations Act 2001 outlines the main statutory duties of directors, which are:

• to act for a proper purpose;
• to act in good faith;
• to act with care and diligence;
• to avoid conflicts of interest;
• to prevent insolvent trading;
• to carry out administrative duties

Breaches of directors’ duties

Breaches of directors’ duties can result in criminal and civil penalties and disqualification from the directorship and civil action by shareholders, the company or its creditors. To avoid disputes over whether directors have breached their duties, it is advisable for a company to clearly set out what is acceptable or unacceptable conduct from directors.

There are three main ways this can be done:

• by amending the company’s articles
• in a shareholders’ agreement (where the directors are also shareholders)
• in a directors’ service contract

How can directors protect themselves?

Company directors should ensure they comply with the principles set out in the Corporations Act 2001.

Risks arise when a director becomes aware that a co-director is acting unlawfully, when a company is in financial difficulties and when personal liability attaches to directors if the company continues to trade when insolvent.

Taylor Rose assists directors by:

• ensuring that directors’ roles, duties, rights and responsibilities are very clear;
• advising on what to do when a director has legal concerns about the activity of the company and whether and if so, how to resign whilst protecting employment law or other rights;
• obtaining appropriate legal indemnities against liability from the company;
• being covered under appropriate Directors and Officers Insurance.

For more information on how we can assist, please get in touch.