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Director Duties and Liabilities

Directors are ultimately responsible for managing the affairs of a company and must do so in compliance with significant legal duties and obligations. As such, the below is intended as a high level overview of some of the key matters for directors to bear in mind:


The Tightrope

Amongst other things, directors must always ensure they act in compliance with:

  • the Corporations Act
  • their obligations at common law and in equity (such as fiduciary duties)
  • the company’s Constitution
  • relevant contractual agreements (such as a shareholders deed)


Personal Liability

Directors can be exposed to personal liability including in respect of:

  • personal guarantees and indemnities (such as to support company banking facilities or leases of land)
  • accessorial/personal liability provisions of various statutes including those relating to tax, work health and safety and the Australian Consumer Law



A breach can result in serious penalties and have adverse ramifications including:

  • monetary damages
  • fines
  • jail
  • disqualification from being a director
  • reputational damage



A director’s duties include an obligation to:

  • exercise due care and diligence in the performance of their powers
  • act in good faith in the best interests of the company
  • exercise their powers for a proper purpose
  • not improperly use their position, or information they obtain from their position, to benefit themselves or others or cause detriment to the company
  • avoid conflicts of interest between their duties as a director and their personal interests
  • maintain accurate financial records and report to ASIC on the financial affairs of the company
  • prevent the company from trading while insolvent


Limited Defences

When it comes to the Corporations Act, limited defences are available with the main ones being:

  • a director will not have breached their duty to exercise due care and diligence (judged by reference to a ‘reasonable person’ in like circumstances) if they rationally believed their decisions were in the best interests of the company
  • a director will not be in breach of their duty to avoid conflicts of interest if they disclosed their material personal interests in a matter to the board




Generally speaking:


  • duties cannot be delegated
  • a failure to remain informed is no defence
  • reliance on external experts does not relieve a director of responsibility
  • insurance coverage may not necessarily provide full coverage
  • leaving as a director does not relieve a director of liability
  • a company can only provide a very limited indemnity in favour of a director
  • directors and officers insurance is strongly recommended including having run-off cover


More Information

Please contact our commercial law team at Matthews Folbigg Lawyers on 9635 7966 if you require legal advice with respect to your obligations as a company director or if you would like to discuss the options available to endeavour to protect your interests.