Directors’ roles and duties in Australia.

Posted in
Directors’ roles and duties in Australia

As a director, you are responsible for the management of your company’s affairs and must comply with your legal obligations under the Corporations Act 2001. This guide will provide an overview of the directors’ roles and duties in Australia.

Let’s jump right in.

Who can be a director?

Section 201B of the Corporations Act 2001 states that a director can be any individual who:

  • Is at least 18 years of age
  • Is not disqualified from managing corporations unless leave is granted by ASIC (under section 206F(5)) or by a court (under section 206G)

What are the roles of a director?

Roles of a company director in Australia include:

  • Set the direction and strategy of the company
  • Set and approve policies and budgets
  • Monitor the performance of the company

What are the duties of a director?

Some of the most significant and important legal duties imposed on directors under the Corporations Act 2001 are:

  • To act in good faith in the best interests of the company and for a proper purpose
  • To exercise care and diligence
  • To not improperly use their position to gain an advantage for themselves or someone else or to cause detriment to the corporation
  • Must not improperly use information to gain an advantage for themselves or someone else or to cause detriment to the corporation

How to meet your duties as a director?

The below list is not extensive; however, you are unlikely to face the consequences as a company director if you:

  • Are honest and careful in dealing with the company and on its behalf with others
  • Understand your legal obligations and ensure that you maintain compliance with them
  • Keep informed about your company’s financial position and performance, make sure your company can pay its debts on time, and keep proper and accurate financial records
  • Make the interests of the company, its shareholders, and its creditors top priority – this includes acting in the company’s best interests, even if this may not be in your own best interests
  • Use information obtained through your position properly and in the best interests of the company
  • Seek professional advice or more information if you have any doubts or questions

As a director, you must keep fully up-to-date on your company’s actions. You should:

  • Find out and assess for yourself how any proposed action will affect your company’s business performance, especially if it involves a large proportion of the company’s money.
  • Seek external professional advice if you need more details in order to make an informed decision.
  • Question managers and staff regularly about how business is tracking
  • Take an active part in directors’ meetings

Liabilities of a director

Increasing corporate governance and regulatory surveillance mean directors are under greater pressure to perform their duties and obligations with meticulous care.

Failure to do so may lead to personal liability for the individual director or the entire board of directors, regardless of whether they are acting in a part-time, honorary or non-executive capacity.

Under the Corporations Act 2001, if you, as director, breach a duty or fail to meet an obligation, you can be disqualified from acting as a director of a company in the future.

You may also be found guilty of a criminal offence, and in serious cases, you can face years of imprisonment.

You may also face financial penalties, including:

  • Compensation to an aggrieved party
  • A fine or penalty
  • The legal costs of the other party
  • Your own legal defence costs
  • Interest on any of the above

Director protection measures

It is vital that you understand your personal liability and what measures you can take to protect yourself.

Some of these measures include:

  • Reducing your personal liability risk with a Deed of Indemnity, Access and Insurance
  • Transferring your personal liability risk using Directors and Officers (D&O) insurance
  • Being aware of your residual personal liability risks and considering the management of your personal assets

The D&O insurance cannot cover some risks.

These include:

  • Loss of reputation
  • Personal financial losses
  • Legal costs of the other party
  • Fines and penalties for criminal offices and certain civil pecuniary penalties
  • Fraud, wilful misconduct and criminal conduct

Directors and officers insurance

A D&O insurance policy is not compulsory in Australia, but almost all Australian companies choose to take out this insurance to offer protection to their officers.

The policy should include run-off coverage. This can protect past directors for claims arising out of wrongful acts that occurred prior to their retirement or removal from office for up to the seven-year statute of limitations.

This period also coincides with the statutory right under the Corporations Act 2001 for directors to access company books after ceasing to be a director.

Appointment, resignation and removal of a director

Appointment of a director

According to section 201G, a company can appoint a director by a resolution passed at the general meeting.

Resignation of a director

A director may resign from their position by giving written notice of resignation to the company at its registered office (section 203A).

Removal of a director

A proprietary company and public company may remove a director from office by resolution (section 203D).

Conclusion

Directors are an important position in a company. It is vital that you understand the directors’ roles and duties in Australia to stay compliant with the law and act in the company’s best interest. If you are seeking to become a director of a company, feel free to contact Acclime for guidance.

Share this article

Need business support in Australia?

Get a free 30-minute consultation on operating and growing your business in Australia.


© Acclime Australia | Privacy policy

Liability limited by a scheme approved under Professional Standards Legislation.