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Breach of Common Director Duties under the Corporations Act

Potts Lawyers > Litigation  > Breach of Common Director Duties under the Corporations Act

Breach of Common Director Duties under the Corporations Act

Introduction

Being a director or an officeholder of a company may come with many perks and financial benefits, but it also comes with risks and legal obligations. Certain officers of a company may also have the same obligations as a director of a company.

Directors and secretaries have certain obligations imposed on them by the Corporations Act 2001 (‘Act’) and are referred to as ‘director duties’. There are other duties which arise under the common law and other legislation relating to employment, work health and safety, taxation and consumer protection.

No matter how the duty arises, it is imperative that a person is aware of their duties, strictly complies with their duties and takes their duties very seriously. The consequences of breaching duties under the Act can lead to civil or criminal penalties.

It is often the case that early and strategic advice from a trusted lawyer can help avoid the worst outcome. Our firm prides itself on providing only the highest level of client care and will help you navigate your issues with effective and pragmatic solutions.

If allegations have been raised that you have breached your director duties, we recommend that you seek legal advice as soon as possible. Our civil litigation team and criminal solicitors are experienced and well adept at assisting with matters involving alleged breaches of director duties which may have criminal or civil penalties attached.

This article discusses the duties imposed by the Act on directors, and other officers as defined under the Act. This article is general in nature and should not be construed as legal advice. If you are seeking specific legal advice about your matter, we recommend that you seek independent legal advice as soon as possible.

We offer a free and confidential initial consultation to discuss your matter. Feel free to contact us on 07 5532 3133 to arrangement an appointment.

Who do the Common Director Duties under the Act apply to?

The duties imposed under the Act apply to directors and officers.

A director of a company or other body is defined under section 9 of the Act as:

a)   A person who

I.   Is appointed to the position of a director; or

II.  Is appointed to the position of an alternative director and is acting in that capacity

Regardless of the name that is given to their position; and

b)  Unless the contrary intention appears, a person who is not validly appointed as a director if:

I.   They act in the position of a director (also known as a de facto director); or

II.  The directors of the company or body are accustomed to act in accordance with the person’s instructions or wishes (also known as a shadow director).

An officer has a broad meaning under section 9 of the Act.

An officer in the context of a corporation includes a director and a secretary of a company. It also includes a person:

a)  Who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or

b)  Who has the capacity to affect significantly the corporation’s financial standing; or

c)  In accordance with whose instructions or wishes the directors of the corporation are accustomed to act.

The above is not an exhaustive definition of who is an officer of a corporation for the purposes of the Act, and includes other persons such as administrators, liquidators and restructuring practitioners. 9.

The definition of a director and an officer are deliberately broad under the Act. This means that even if a person is not formally appointed as a director of a company, they may still have the same obligations as a director, secretary or other officer of a company, despite the name given to a person’s position within a company.

What are the Common Director Duties under the Act?

Some of the common director duties under the Act include:

Duty under the Act Who does this Duty Apply to? Brief Description of the Duty
1.       Acting with care and diligence A director or other officer of a company An obligation to carry out the duties with the degree of care and diligence that a reasonable person would in their position.
2.       Acting in good faith in the best interests of the company and for a proper purpose A director or other officer of a company This duty also extends to acting in the best interests of shareholders and other stakeholders involved in a company, and there is a separate but related fiduciary duty which overlaps with this duty.
3.       Not to improperly use their position A director, other officer or an employee of a company This duty requires that a person must not improperly use their position to gain an advantage for themselves or someone else or cause detriment to the company.
4.       Not to improperly use information A director, other officer or an employee of a company This duty requires that a person must not improperly use information to gain an advantage for themselves or someone else or cause detriment to the company which was acquired as a result of them being previously or currently involved in a company.

 

A person who breaches any of the director duties can be held personally liable. The above four common duties have civil penalties attached to them. The duties relating to acting in good faith, not to improperly use their position, and not to improperly use information also have criminal penalties attached to them in certain circumstances.

We discuss other director duties in our articles:

Duty to Disclose Material Personal Interest Under the Corporations Act’

‘Duty to Prevent Insolvent Trading Under the Corporations Act

What should I do If I may have or have breached any of the Director Duties?

If you are concerned that you may have or have breached any of the director duties, you should seek independent legal advice as soon as practical. Depending on the nature of the breach, you may also wish to obtain independent financial advice.

Our firm, having lawyers who specialise in civil and criminal law, are uniquely positioned to advise on both the civil and criminal aspects of any breach of director duties. Our litigation and criminal team regularly work in tandem to protect our client’s interests and provide timely and strategic advice. You can rest assured knowing that our lawyers will be able to deal with all aspects of your matter where there could be a cross-over between civil and criminal law.

We offer a free and confidential initial consultation to discuss your matter. Feel free to contact us on 07 5532 3133 to arrange an appointment.

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