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General Duties of Directors - Corporations Act 2001 (Cth)

The general duties of directors and company officeholders are set out in Chapter 2D of the Corporations Act 2001 (Cth).

Section 180 sets out the general rule that a company officeholder must exercise their powers and discharge their duties with care and diligence.

This duty is subject to a business judgment rule that requires a director making a business judgment to:

  • make the judgment in good faith and for a proper purpose
  • not to have a material personal interest in the subject matter of the judgment
  • inform themselves about the subject matter of the judgment to the extent they believe to be appropriate
  • rationally believe that the judgment is in the best interests of the corporation.

Sections 181 to 183 further set out the duties of a director and other company officers. They must act in good faith in the best interests of the company and for a proper purpose. They are prohibited from using their position to gain an advantage for themselves or someone else, or to cause detriment to the company. They cannot use information obtained in their role within the company to gain an advantage for themselves or someone else.

The above provisions are civil obligations and may also attract civil penalties. If a court declares that a company officeholder has breached their duties, it can impose a financial or pecuniary penalty. The court may also order that the director compensate the company.

The court may also disqualify the person from managing corporations for a period of time [s 206C].

The Australian Securities and Investments Commission (ASIC) is the regulator responsible for bringing court action against company officers who breach these provisions.

Section 184 of the Corporations Act 2001 (Cth) makes it a criminal offence for a director or other officer to act recklessly or is intentionally dishonest in their failure to exercise their powers and discharge their duties in good faith and in the best interests of the company or for a proper purpose.

It is also a criminal offence where a person recklessly or intentionally dishonestly misuses their position or information they have gained through their position with the company.

A person who allows a company to trade whilst insolvent contravenes section 588G of the Corporations Act 2001 (Cth). The section also imposes criminal liability for insolvent trading.

General Duties of Directors - Corporations Act 2001 (Cth)  :  Last Revised: Fri Oct 2nd 2020
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