A refresher on directors’ duties

Australian directors must walk a tightrope to meet their duties as company officers. Our regime for directors’ duties is one of the strictest in the world, and in some cases, breaches can result in personal liability.

Back to basics – a director’s key duties

Directors’ duties can be found in statute, common law, and under a company’s constitution.

The Corporations Act 2001 (Cth) (Act) includes the following key directors’ duties:

Duty of care and diligence (section 180(1))

Directors must use care and diligence when exercising their powers and performing their duties in the way of a reasonable person having the same responsibilities as the director.

A director may avoid a breach of this duty if they made a reasonable ‘business judgment’ in respect of the company’s business operations. This means the director:

  • makes a decision, in good faith and for a proper purpose, to take or not to take a certain action;
  • has no material interest in the judgment;
  • informs themselves on the subject matter of the judgment; and
  • rationally believes the judgment is in the best interest of the company.

Good faith and proper purpose (section 181)

Directors have a duty to exercise their powers and discharge duties in good faith and for a proper purpose. To assess whether this duty is being met, ask: what action would a reasonable director consider to be in the company’s best interests?

Proper use of position or information (sections 182 and 183)

Directors must not improperly use their position, or information obtained in their capacity as a director, to gain an advantage for themselves or others, or to cause detriment to the company.

Insolvent trading (section 588G)

A director must ensure that a company does not trade if it is unable to pay its debts as they become due and payable. A director can incur personal liability for the debts incurred while trading insolvent.

Disclosure of personal interests (sections 191 to 195)

Directors must not act where there is an actual or real possibility of conflict between the company’s interests and the director’s personal interests.

A director who has a material personal interest in a matter relating to the company’s affairs is required to disclose that interest to the other directors.

If the company is a public company, directors with a material personal interest cannot be present while the rest of the board considers the matter and cannot vote on the matter (unless expressly approved by the other directors or by ASIC).

Penalties for a breach of the Corporations Act duties

Statutory provisions regarding directors’ duties and insolvent trading are referred to as “civil penalty provisions”.

If a court declares that a director has breached a civil penalty provision, ASIC can seek an order against the director for a fine or a disqualification order (to prevent the director from managing corporations).

In addition to civil penalties, directors may be found guilty of a criminal offence if they breach their duties dishonestly or recklessly.

Penalties for insolvent trading are particularly strong. Directors who breach the duty to prevent insolvent trading may be:

  • disqualified;
  • given civil fines of up to $200,000;
  • personally liable for company debts or compensation to the company to cover creditors’ loss; or
  • where the director acted dishonestly—criminally prosecuted, which could result in jail time of up to 5 years and/or 2,000 penalty units ($626,000 fine).

Directors in trouble


In February 2023, the Federal Court handed down significant penalties to the directors of failed startup GetSwift Limited, after ASIC uncovered that it had breached continuous disclosure laws 22 times, and misleading and deceptive conduct laws 40 times. The executive chairman was ordered to pay a $2 million fine and banned from managing corporations for 15 years, while the managing director was fined $1 million and banned for 12 years.

The Star

In another ongoing matter, ASIC commenced proceedings in late 2022 against current and former board members of The Star Entertainment Group Limited (Star) for breaching their duties to act with care and diligence, by failing to mitigate the risk of money laundering and criminal associations at the casino operated by The Star. It is the first time in recent years that ASIC has pursued an entire board of directors (rather than just the executives) for breach.

This case is an example of ASIC placing a heavier focus on non-financial risk management and a reminder to directors that they must actively oversee all matters of the company. The results of the hearing will be important in the understanding of the scope of directors’ duties. The matter is scheduled to be heard in February 2025.

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