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Business Development & Management Services
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Sydney NSW 2069 Australia
Tel: +61 (0)2 9882 3231
Fax: +61 (0)2 9882 2487

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Directors Responsibilities

All Australian Company Directors should be aware of the consequences of being sued under the Corporations Act and that both creditors and shareholders have a number of ways of bringing legal action against all the officers.

Statutory Responsibilities
Directors should be fully aware of their statutory responsibilities in governing a company, the main directors duties are set out in section 180-184 of the Corporations Act and the duties include:

• Exercise care, skill and diligence s 180
• Act in good faith s 181
• Not to misuse the officer's position s 182
• Not to misuse information s 183
• Not to act dishonestly s 184 - A criminal offence

Insolvent Trading
Corporations must not trade whilst insolvent as this action puts creditors at risk. A director will be personally responsible for debts incurred by the company if there are reasonable grounds for 'suspecting' that the company is insolvent and continues to trade section 588G. The test is whether a reasonable person in a like position would continue to trade and if proven it is a criminal offence.

Business Judgment Rule
A directors' defence is provided under the corporations act by the Business Judgment Rule s 180(2). Directors are seen to be complying with their statutory duties if they meet each of the following:

• The business judgment was made in good faith for a proper purpose
• The officers do not have a material personal interest in the events
• They inform themselves about the subject matter
• They rationally believe that the judgment is in the best interests of the corporation

Corporate Governance
Companies vary greatly is size, complexity, industry, ownership structure and other characteristics that what is ideal in some cases may be inappropriate in others. Tried and proven structures and processes can help to improve governance, and can play an important role in building shareholder confidence in the soundness of their investments and thus a company's ability to attract capital. However there is no simple universal formula for good corporate governance.

Penalties and Fines
Consequences of breaching duties range from civil to criminal. Fines are on penalty unit basis with one penalty unit equal to $110 and range from $137.50 (1.25 times a penalty unit) for a technical breach to $220,000 (2000 penalty units) for more serious breach. The more serious breach may result in disqualification from taking part in the management of any company for up to 5 years and or five years imprisonment for criminal breaches.

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