Fact Sheet 3 - Directors' Obligations

Australia’s corporate regulatory regime, the Corporations Act 2001 (the Act) and general Australian law impose duties upon directors of Australian companies. These include to:

  • exercise due care and diligence in the exercise of their powers and the discharge of their duties;
  • act in good faith in the best interests of the company and for a proper purpose;
  • avoid improper use of their position to gain advantage for themselves or cause detriment to the company; and
  • avoid improper use of information obtained in their role as a director to gain advantage for themselves or cause detriment to the company.

The law regarding these general duties is subject to detailed interpretation by Australian courts. For example, these duties impose obligations on directors to ensure that they appropriately manage any conflicts that arise during the discharge of their duties. They also import obligations regarding their knowledge and understanding of the financial position of the company. There are also restrictions on the ability of directors to delegate the discharge of their duties to third parties.

In addition to their general duties, the Act also imposes certain specific obligations on directors. These include:

  • the duty to prevent insolvent trading by the company. This requires directors to ensure that the company does not incur a debt at a time when the company is insolvent, or becomes insolvent by incurring that debt (or other debts including that debt); and
  • obligations with respect to the preparation of the company's financial statements, including the making of a declaration as to whether the financial statements comply with accounting standards and give a true and fair view of the financial position and performance of the company.

Breaches of certain directors’ duties and other obligations carry serious penalties including fines, imprisonment, and being prohibited from acting as a director or managing a company. Any person proposing to be a director should ensure that they are fully aware of all of their obligations under Australian law.

Please refer to company officeholder duties on the ASIC website for further details.