The Perth District Court recently convicted West Australian director, Oliver Wood, for breaching his directors’ duties. Following an eight-day trial, the Court convicted Wood on three counts of dishonestly using his position as a director including withdrawing more than $29,000 from SEO Company Pty Ltd’s bank account for his personal use.

What Went Wrong?

In withdrawing money from the company for his personal use, Mr Wood breached his director’s duty not to make improper use of his position. Wood could have caused detriment to the company to gain an advantage for himself.

What Legal Duties Must Directors Follow?

Directors have legal duties to a company. Australia’s Corporations Act 2001 (the Act) governs Directors’ duties, company governing documents including the Constitution as well as any shareholders’ agreements.

Directors need to understand their duties and how they apply. Under the Act, directors must abide by a number of obligations, including:

  • Act in good faith,
  • Avoid conflicts of interests,
  • Not make improper use of information or their position, and
  • Ensure the company keeps accurate financial records.

It is critical that company founders and management understand that any payments made by a company need to be for a proper purpose. Individuals can be paid a salary, shareholders can be paid dividends and in certain circumstances, a company can make a loan to an individual. All company transactions, however, should be scrutinised to ensure they were for a proper purpose and that the amounts were not in bad faith.

How can Directors Protect Themselves?

Directors should understand their duties under the Corporations Act and company documents including the Constitution and any shareholders agreement before they agree to become a director.

It is important for directors to seek independent legal advice, and not from their company’s legal advisor who acts for the company. While the company’s legal advisor can give general guidance on directors’ duties, the company’s legal advisor acts for the company and not for any individual director.

Conclusion

LegalVision’s corporate and commercial lawyers have considerable experience with advising both companies and individual directors. If you have any questions about your directors’ duties, please get in touch on 1300 544 755.

Ursula Hogben

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