Being a director of a company in Australia comes with a number of legal obligations and duties. If you fail to meet any of these obligations you can face serious penalties, including fines and even criminal charges in some cases. This article sets out the:

  • top ten issues you need to be aware of when acting as a director; and 
  • risks and penalties you may face if you do not comply.  

1. Do Put the Company First

As a director, your first duty is to the company. Any decisions you make relating to the company must be primarily for its benefit, rather than to advantage you or any other person.

For example, if you need to vote on a commercial transaction that will boost the company’s revenue (and therefore your director’s fees), but is not strategically in the company’s best interest, you should consider the company’s strategic interests as a priority.

2. Do Act in Good Faith

As well as putting the company first, you must ensure that your actions are carefully considered and based on independent judgement. Take extra steps to research any decisions you need to make as a director. This goes beyond general honesty.

For example, you could breach this duty by making decisions about your company without board approval. 

3. Do Take Care

You must act with care and diligence in all actions as a director. This extends to being thoughtful and considered in all decisions and making sure you are familiar with the company’s business activities and financial records.

4. Don’t Allow Conflicts of Interest 

It is your responsibility to be aware of any conflicts that may exist or arise between your interests and those of the company. You must disclose all material personal interests related to the company’s affairs and you must notify the board and other directors as soon as any potential conflicts or concerns arise. 

5. Do Keep on Top of Finances

There is no excuse for a director not being on top of a company’s financial situation. Depending on the size of the company, you should regularly:

  • review the company’s books and records; or 
  • meet with the employee or team responsible for those books and records. 

Being aware of the company’s financial situation is essential to making decisions in the company’s best interests. 

6. Don’t Trade While Insolvent 

It is your responsibility to ensure the company does not trade while insolvent, which means that the company is unable to pay its debts. When reviewing the company’s finances, look for any signs that the company may be struggling to pay debts. If you have doubts, investigate further and consider seeking expert advice. Allowing a company to trade while insolvent can result in heavy penalties for directors. 

7. Do Keep Up to Date

It is essential that you ensure the company’s details are correctly recorded on the company register with the Australian Securities and Investments Commission (ASIC). Do not assume other people will get this right without checking yourself.

For example, this includes the correct contact details for all directors and updating the company’s registered address if it changes. 

8. Don’t Miss Deadlines

Another important task that you are responsible for is ensuring the company meets all deadlines for payments and reports to be made to ASIC. There are a number of annual requirements for every company and, if you miss them, you may face penalties and the company may face deregistration. 

9. Do Be Ethical

In every action relating to the company, directors must act ethically and must not improperly use their position or acquired knowledge to gain a personal advantage or damage the company. 

10. Don’t Sign Director’s Guarantees Without Careful Thought

Be aware of the personal risk that comes with signing a director’s guarantee. A director’s guarantee means you agree to be personally responsible for certain debts if the company fails to pay them. In most cases, that responsibility lasts forever, even if: 

  • you stop being a director for the company; or
  • the company stops operating.   

Key Takeaways

Before you sign on as director of a company, make sure you are fully aware of the extent of your duties and the legal responsibilities that come with them. Being a director means: 

  • acting in the best interests of the company;
  • meeting all deadlines for reporting to ASIC;
  • continually reviewing the company’s financial status; and 
  • taking steps to investigate any operational issues. 

If you have any questions about director’s duties, contact LegalVision’s commercial lawyers on 1300 544 755 or fill out the form on this page. 

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