Knowing and fulfilling your duties as a company director is essential when running a business. The Corporations Act 2001 outlines general duties that company directors are bound by with significant penalties in place for those found in breach of their obligations. This article will cover the implications for a director placing their own interests ahead of the company’s, and the potential consequences for breaching director duties.
Who is a Director?
A director is someone who has been appointed to manage the company’s business affairs on behalf of shareholders. Individuals not formally appointed to the role can be considered directors (shadow or de facto directors) in certain circumstances, however that is not the focus of this post. Directors play an important role in the way a company functions, which is why they have certain duties that they must comply with when performing their role.
What are a Director’s duties?
By law, directors must ensure they act in the best interests of the company, with a certain degree of skill and diligence. Directors must also ensure they do not place their own interests ahead of the company’s when performing their role. This can range from ensuring the company complies with its tax obligations, to avoiding circumstances where the company’s interests and the director’s interests may not align. A director must also not incur debt on the company’s behalf if they know (or should know) the company cannot repay that debt. These duties apply to all directors, whether formally appointed or not, and can come with serious consequences if ignored.
What are the consequences of not knowing my duties as a Director or not abiding by them?
There are several consequences for directors who fail to abide by their duties appropriately, one of which is civil penalties, where directors can be held personally liable for any detriment caused to the company as a result of their actions or decisions. Secondly, criminal action can be taken against directors for reckless or dishonest breaches of director duties which can include imprisonment.
What do I do if I know or believe I am not abiding by my Director duties?
It is very important for directors to understand their duties and the consequences of failing to act appropriately. It is highly recommended to get in touch with a trusted advisor to be provided professional advice about your obligations as a director.
Article written by Adam Kersey (Associate Director) – SV Partners Brisbane