Top Guns: Duties and Responsibilities of Directors

duty-and-responsibility-of-directors

Directors of a company are the movers and shakers. They are the game changers and the motivators. They can direct the future of the entire company to success, and with that role comes great responsibilities.

Directors are appointed by ordinary resolution of the members with the crucial role of managing the company’s business affairs and its direction in the future. They hold powers governed by the Company Constitution or the Corporations Act 2001 (Cth) and must foster good governance and the interests of the company at all times.

Duty to act in good faith in the company’s interests

Directors of a company must act bona fide (in good faith) in the company’s interests at all times. This is somewhat an objective criteria in a sense that a director must have acted in the same way a “reasonable director” would have in their place.

Duty to not act for an improper purpose

A proper purpose is essentially acts done for a legitimate purpose and done so for the benefit of the company. A court may find a breach of this duty if directors act in their individual interests or in the interests for a third party at the detriment to the company.

Duty to act with care and diligence

Directors must at all times exercise a degree of care and diligence. Directors must take an active interest in the company’s business at all times. If a director delegates to subordinates and pays no further attention, the director may be in breach of this duty.

Duty not to trade while insolvent

This is one of the most important duties of a director. A company is considered insolvent if it is unable to pay its debts when it is due. Directors must, therefore, take great care to ensure that there are no reasonable grounds in his or her mind that the company is insolvent, especially when incurring a new debt.

Duty to avoid improper use of information and position

The duty to avoid improper use of information and position is very similar. Directors and officeholders of the company must not use their position and confidential information to unfairly advantage themselves or other third parties. Dishonest actions such as this that cause detriment to the company will be found to be a breach of these duties.

Duty to avoid improper use of information and position

The duty to avoid improper use of information and position is very similar. Directors and officeholders of the company must not use their position and confidential information to unfairly advantage themselves or other third parties. Dishonest actions such as this that cause detriment to the company will be found to be a breach of these duties.

Don’t fly low – Liabilities of failing director duties

What’s at stake if you fail your duties as a director? Directors can be personally liable for a breach of their duties. ASIC may impose a civil penalty of up to $200,000.00 and in extreme cases of recklessness or intentional dishonesty, a director could face 5 years imprisonment.

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