Directors’ Duties

Regardless of your industry or type of business, if your entity structure is a company then it is important you understand your role as a director of the company and your duties to the company.

A company is a separate legal person. It is required to follow the law and has obligations to pay tax, like other legal persons. It is the directors of the company that are responsible for managing the company.

Directors are in a position of trust and owe duties to their company which include:

  • A duty of skill, care and diligence;
  • A duty to act lawfully and to cause a company to act lawfully;
  • A duty to act in the best interests of the company and for a proper purpose;
  • A duty to not take advantage of position for the director’s own benefit (ie to prevent the director from having a conflict of interest); and
  • A duty not to trade when insolvent.

The duties owed by directors are encapsulated under the Corporations Act 2001 (Cth).

If your company is a Not-For-Profit and is also registered as a charity with the Australian Charities and Not-For-Profits Commission (ACNC), then the directors are subject to the Governance Standards of the ACNC.

In addition to complying with your general duties as a director, your duty also extends to shareholders of the company. If the company is in financial distress, your duties can extend to the creditors and employees (who have outstanding entitlements).

What we do

We can advise you about your obligations as a company director, as well as provide assistance to the company in relation to matters at Board level. Our services include:

  • Advice on board composition and good governance practices at the board level;
  • Advice on the liability of directors for debts of the company or penalties that might arise for breaches of directors’ duties;
  • Advice directors in relation to the risk of insolvent trading;
  • Drafting director or officer indemnity deeds;
  • Advice on governance systems including delegations of authority and execution protocols;
  • Preparing constitutions;
  • Advice on board and member meetings, notices and minutes;
  • Drafting board policies and guidelines;
  • Drafting confidentiality deeds for board members;
  • Enforcement actions; and
  • Advising and acting on disputes between companies and directors.

The MV difference

  • Many of our Partners serve on Boards of Not-for-Profits and have first-hand experience on the challenges faced by an organisation at the board level.
  • We are commercially focussed and will work to achieve the best outcome for your business.
  • We are committed to protecting your interests having regard to both legal and non-legal interests.
  • Our commercial and litigation teams work seamlessly together to enforce and protect the company.

FAQs

Your responsibilities as a company director are to fulfil your duties. You have general duties as a director set out in the Corporations Act, which include the duty to act in good faith, for a proper purpose and with due care and diligence as well as the prevention of insolvent trading.

As a company director, it is important for you understand the operations and finances of the company at a level that permits you to govern effectively. There is no such thing as a passive or silent director!

Conflicts of interest occur when your duty to act in the best interests of the company conflicts with an opportunity, or potential opportunity, to gain a personal benefit. A conflict may be an actual conflict or a perceived conflict.

If a conflict of interest is not managed properly it may damage the company’s reputation and in some cases break the law. In this case, you should inform the Board of Directors as soon as possible, and allow the Board to decide how to mitigate that risk.

It may be that you will need to not take part in the discussion or decision–making process in relation to that contract.

Under the doctrine of limited liability, as a director, you are usually protected from liability from debts and other losses of the company.

However, due to the fact that directors are the managing mind of the company and have the capacity to influence the conduct of the company, directors may be personally liable for debts (including tax debts) and losses of a company which may arise through a breach of directors duties or other statutory obligations imposed on directors or companies (for example, duty on directors to prevent insolvent trading).

A director penalty notice (DPN) is a notice of assessment issued to a company director by the Australian Taxation Office (ATO) for a penalty equal to the amount of certain unpaid tax amounts owed by the company to the ATO, particularly superannuation guarantee charge (SGC) and pay-as-you-go-withholding (PAYGW).

The practical effect of a DPN is to pierce the corporate veil and make a company director personally liable for a tax debt owed by their company.