In Australia, directors’ duties arise under legislation (in particular the Corporations Act), under an extensive body of case law and less commonly (and, if applicable, typically to a less important extent) under the company’s constitution.
Directors are fiduciaries meaning they owe special and very stringent duties to the company including, without limitation, the duty: – to act honesty
When exercising directors’ powers, you are required to exhibit ‘such a degree of skill as may reasonably be expected’ from a person with your knowledge and experience.
You will be taken to have fulfilled the requirements of the duty of care, diligence and skill if you make ‘business judgments’: – in good faith and for a proper purpose
interests of the company
When exercising directors’ powers, you are As a director of a company, you must act in a way that you think is most likely to promote the success of the company. You need to consider a number of statutory factors relating to corporate requirements, including the long term consequences of your decisions, the company’s reputation, and the interests of other stakeholders such as employees, customers and the community.
You must exercise your powers and discharge your duties in good faith in the best interests of any company to which you are appointed as a director and for a proper purpose. Accordingly, you must take care not to be involved in actions which can be construed as not being in good faith or not being for a proper purpose.
You must not improperly use information obtained in your position, or otherwise improperly use your position to gain an advantage for yourself or someone else, or cause detriment to the company.
You must prevent the company from incurring a debt, where you are aware that at that time there are grounds for suspecting, or a reasonable person in a similar position in the company’s circumstances would be so aware, that the company is insolvent or will become insolvent as a result of incurring the debt.
You must exercise your powers and duties with the care and diligence that a reasonable person would have which includes taking steps to ensure you are properly informed about the financial position of the company, ensuring that the company meets its legal obligations (known as the ‘stepping stone’ approach) and ensuring the company doesn’t trade if it is insolvent.
A person in the position of director will be in possession of, or have access to information which is “inside information”, being information regarding the company that is not generally available, or if the information was generally available, a reasonable person would expect it to have a material effect on the price or value of the company. Alongside your duty not to misuse your position and information, you must not (directly or indirectly) communicate or cause the communication of inside information to another person, if you know or ought reasonably to have known, that the other person would or would be likely to apply for, acquire or dispose of (or procure another to apply for, acquire or dispose of) shares in the company.
There are many other areas of law that impose duties on directors and senior managers. Matters likely to be of particular relevance, depending upon the nature of the entity and its activities, are set out below.
Go (PAYG) withholding or Superannuation
Guarantee Charge (SCG) Amounts
in relation to the preparation of financial statements
You can become personally liable for activities of the company which breach relevant environmental protection regulations. In Australia, environmental protection laws are legislated at State and Territory level. However by way of example, in New South Wales, there are a number of environmental protection laws which create liability for directors, including the Protection of the Environment Operations Act 1997 (NSW) (POEO Act), which creates personal liability for corporate officers, including directors, for the commission of an offence by the company. Certain environmental offences under the POEO Act, attract individual fines of up to $250,000 and a penalty of $60,000 for each day the offence continues, this includes the following offences:
Increasingly, there is also suggestion that directors who fail to properly consider the impact of foreseeable climate change risks on their business could be held personally liable for breaching the duty of due care and diligence they owe to their companies. As a matter of Australian law, directors should therefore now actively engage with the impacts of climate change-related risks on their operations and strategy in order to satisfy their duty of due care and diligence under section 180 of the Corporations Act.
In an attempt to harmonise the various State and Territory laws legislation was developed, consisting of a model Work Health and Safety Act
2011 (Cth) (WHS Act), model Work Health and Safety Regulations 2011 (Cth) (WHS Regulations) and model Codes of Practices and a National Compliance and Enforcement Policy.
To date, the model WHS Act and WHS Regulations have been implemented by the Commonwealth, the Australian Capital Territory, New South Wales, the Northern Territory, Queensland, South Australia and Tasmania.
Under the WHS laws, a director can be held personally liable for a company’s failure to exercise all due diligence to prevent contravention of the laws. The maximum penalty that can be imposed on a director is AU$600,000 or 5 years imprisonment, or both. The WHS Act and WHS Regulations impose personal liability on directors for failure to exercise all diligence.
Due diligence at its simplest, requires an officer to concentrate on managing the work health and safety risks of the business. This reflects the fact that an officer (including a director) is in a position to influence business affairs of a company, and governs and makes management decisions for the company.
The following is a non-exhaustive list of examples of reasonable steps that directors must take to ensure they are exercising due diligence:
In Australia, privacy law generally relates to the protection of individuals’ personal information. The principal legislation in Australia is the Privacy
Act 1988 (Cth), which, following amendments in
2013, lays down 13 Australian Privacy Principles (APPs) which regulate the way that entities collect, use, disclose, secure, provide access to and correct personal information.
The sanctions for failure to comply are directed at entities with powers of enforcement residing in the Office of the Australian Information Commissioner.
Directors can be liable under this section to penalties including injunctions, damages and compensatory orders.