Setting up a company can be a challenging process. Extensive amounts of time and resources are spent preparing the corporate structure of the company, including drafting the company constitution, shareholders agreement and other key legal documents. If you suspect, after having set up the company, that a fellow director has breached his or her duties as a director in the company, what can you do? Well, first of all, you will need to identify how this director has breached his or her duties (if at all) and in what ways.

Director’s duties 

There is a range of director’s duties set out under general law and the Corporations Act 2001. These duties are binding on all directors of proprietary companies that are limited by shares. If you suspect that a director has breached one of his or her duties, considering these general director’s duties is a good starting point.

Some general director’s duties include:

  • Acting with care and diligence. A breach of this duty involves a director’s engagement in risky financial transactions without any foreseeable benefit to the company.
  • Acting in good faith, in the best interests of the company and for a proper purpose. This duty is similar to the fiduciary duty that is imposed on directors in common law and statute law. Directors must avoid conflicts of interests and always disclose to the company when a potential conflict of interest may arise in a particular situation.
  • Not using the position of director improperly. A breach of this duty would be to use your position of power and influence to take advantage of another party in the company, or to act in the detriment of the company.
  • Not improperly using information that is gained during the course of carrying out duties as a director. Improper use would include gaining a personal advantage, or acting in a way that detriments the company or disadvantages other parties within the company.
  • Avoiding conflicts of interest. Directors have a fiduciary duty to the company.
  • Keeping records about the financial position of the company, and
  • Not trading while the company is insolvent.

Directors' Duties Complete Guide

If you are a company director, complying with directors’ duties are core to adhering to corporate governance laws.
This guide will help you understand the directors’ duties that apply to you within the Australian corporate law framework.

Download Now

 Has there been a breach?

The next question to consider is if any of these duties have been breached. Of course, at this stage, it is important to consider whether or not certain actions of the director have been authorised by:

  • The company’s constitution;
  • The company members in a general meeting; Or
  • By the board of directors.

For example, you may suspect that a director has breached his duties by taking out loans against the company. However, it may have been the case that the company gave the director authority to take out such loans through a resolution as per the shareholders agreement. In this situation, it may not be the case that the director has breached his duties, given that the company granted approval for his actions.

What are the consequences for a breach?

Establishing that a director has breached his duties can cause serious consequences to the director. Some consequences of breaching director’s duties include:

  • Criminal sanctions that could include imprisonment for anti-competitive conduct, acting in bad faith or dishonestly;
  • Civil sanctions, such as fines;
  • Disqualification from your position as director; And/Or;
  • Commercial consequences that include placing at risk your company’s reputation and assets.

Conclusion

If you suspect that a director in your company has breached his duties, you could speak with a lawyer to seek legal advice, review your company’s documents and gain an understanding of your options.

COVID-19 Business Survey
LegalVision is conducting a survey on the impact of COVID-19 for businesses across Australia. The survey takes 2 minutes to complete and all responses are anonymous. We would appreciate your input. Take the survey now.

RSVP for our August 26 webinar:
Tips for Managing Your Business' Cash Flow During COVID-19
LegalVision, in partnership with Grant Thornton, is hosting a free webinar to help businesses navigate the cash flow challenges arising from the COVID-19 pandemic. You will learn about the most important business metrics to keep an eye on during COVID-19, how to manage your cash flow and strategies to access cash during an economic downturn. Register for free now.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. For just $199 per month, membership unlocks unlimited lawyer consultations, faster turnaround times, free legal templates and members-only discounts.

Learn more about LVConnect

Lachlan McKnight
Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

  • By submitting this form, you agree to receive emails from LegalVision and can unsubscribe at any time. See our full Privacy Policy.
  • This field is for validation purposes and should be left unchanged.
Our Awards
  • 2019 Top 25 Startups - LinkedIn 2019 Top 25 Startups - LinkedIn
  • 2019 NewLaw Firm of the Year - Australian Law Awards 2019 NewLaw Firm of the Year - Australian Law Awards
  • 2020 Fastest Growing Law Firm - Financial Times APAC 500 2020 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review 2020 AFR Fast 100 List - Australian Financial Review
  • 2020 Law Firm of the Year Finalist - Australasian Law Awards 2020 Law Firm of the Year Finalist - Australasian Law Awards
  • Most Innovative Law Firm - 2019 Australasian Lawyer 2019 Most Innovative Firm - Australasian Lawyer
Privacy Policy Snapshot

We collect and store information about you. Let us explain why we do this.

What information do you collect?

We collect a range of data about you, including your contact details, legal issues and data on how you use our website.

How do you collect information?

We collect information over the phone, by email and through our website.

What do you do with this information?

We store and use your information to deliver you better legal services. This mostly involves communicating with you, marketing to you and occasionally sharing your information with our partners.

How do I contact you?

You can always see what data you’ve stored with us.

Questions, comments or complaints? Reach out on 1300 544 755 or email us at info@legalvision.com.au

View Privacy Policy