Being the Director of an incorporated business is no small feat. While Directors undoubtedly enjoy a position of privilege and power vis-a-vee their workers, they are also subject to very specific obligations, know as Directors duties, under both the common law and statute. One such duty that Directors must adhere to is known as the duty of care and diligence. A breach of the rule not only calls into question the internal management of a company, but also pierces the corporate veil and allows creditors and alike to hold the Director personally liable for any wrongdoing. As such, it is paramount that all Directors and business owners are well acquainted with the scope and breadth of the duty of care and diligence, lest they fall victim to it.

Scope of the Duty

The duty of care and diligence holds that a Director of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a Director of the corporation.

What a reasonable Director would do in the circumstances is a question of fact that will ultimately depend upon the contextual surroundings of the situation. Nevertheless, it can be stated that a reasonable person would be one that possesses the same level of knowledge and ability as the Director in question.

Accordingly, there is no single standard of care and diligence, and a higher standard of care may be expected of those who possess special skills, abilities, training, know-how and/or experience.

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

Discharging the Duty

To discharge the duty of care and diligence, a Director must:

  • possess a general understanding of the business;
  • possess a general understanding of the effects that changes in the economy may have on the business;
  • not shut their eyes to corporate misconduct;
  • not engage in an illegal course of action;
  • monitor the affairs and policies of the business; and
  • take reasonable steps to guide and monitor the management of the company, just to name a few.

What about delegated activities? A Director is certainly entitled to delegate and entrust other officers of the company with the performance of specific tasks and activities. Relying on the advice, judgment and knowledge of others is an integral part of any business. However, Directors must be cautious when delegating work, for the duty of care and diligence may be breached when tasks are allocated to an officer in circumstances where it is unreasonable to rely on the information, judgment and or advice of the delegate. Furthermore, delegation may not be allowed where the company constitution prohibits it.

Piercing the corporate veil

I’m sure you have heard or read that Directors enjoy limited liability. That is that the wrongdoings of a company or its agents cannot be attributed personally to the Director. While this is true in most cases, the law recognises specific instances where the corporate veil may be pierced, and the Director held personally liable. A breach of the duty of care and diligence is one such situation.

Outcome

Would you like to know more about the Director’s duty of care and diligence, its scope or the availability of defences open to the same? Our friendly team of LegalVision lawyers would be happy to assist you with any question or queries that you may have. Call us today on 1300 544 755 to see how we may help.

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.

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

Vanja Simic
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