Question 1

What are the key duties of a company director in Australia?

Accepted Answer

Directors must act with care and diligence (s 180), in good faith in the best interests of the corporation and for a proper purpose (s 181), not improperly use their position (s 182), and not improperly use information obtained through their position (s 183). Directors also have a duty to prevent insolvent trading (s 588G) and must disclose material personal interests to the board (s 191). Breach of these duties can result in civil penalties, compensation orders, and criminal sanctions.

Question 2

What is the business judgment rule?

Accepted Answer

The business judgment rule under section 180(2) of the Corporations Act provides a safe harbour for directors who make business judgments in good faith for a proper purpose, without a material personal interest, who inform themselves about the subject matter to the extent they reasonably believe is appropriate, and who rationally believe the judgment is in the best interests of the corporation. If these requirements are met, the director is taken to have met their duty of care and diligence in respect of that judgment.

Question 3

Can directors be personally liable for company debts?

Accepted Answer

Directors can be personally liable for debts incurred by a company while it is insolvent or becomes insolvent as a result of incurring the debt. This duty under section 588G applies where the director was aware, or a reasonable person in a like position would have been aware, of grounds for suspecting insolvency. Personal liability can also arise under director penalty notices issued by the ATO for unpaid PAYG withholding and superannuation guarantee charges.

Directors' Duties

Industries & Sectors

Peter van der Zanden

Andrew Throssell

Phillip Dobson

Facing a directors' duties matter?