Director duties under the Corporations Act 2001 (Cth)
Directors of Australian companies owe a set of statutory duties codified in Part 2D.1 of the Corporations Act 2001 (Cth) and a set of general-law fiduciary duties. This guide walks through 10 core duties — care and diligence, good faith, proper purpose, conflict avoidance, and the insolvent trading rules in s 588G — with practical implications for AU directors.
Coverage
Every director of an Australian company — whether public, proprietary, not-for-profit or registered charity. Shadow directors and de facto directors are caught by the statutory regime. Nominee directors owe duties to the company, not the appointer.
Legal basis
The statutory duties are set out in Part 2D.1 of the Corporations Act 2001 (Cth) (ss 180-184). The general-law fiduciary duties operate alongside and often reinforce the statutory regime. ASIC regulates enforcement; serious breaches can also attract criminal liability.
The obligations
Exercise care and diligence
Exercise the degree of care and diligence a reasonable person would exercise in the director's circumstances — including knowledge of the business and the director's position. The business judgment rule offers a safe harbour where the decision is informed, in good faith, and for a proper purpose.
Act in good faith and for a proper purpose
Exercise powers and discharge duties in good faith in the best interests of the company and for a proper purpose. Best interests is assessed from the company's perspective, not any individual shareholder.
Do not use position improperly
Do not improperly use position as a director to gain a personal advantage or cause detriment to the company — including where the advantage comes via a related party.
Do not use information improperly
Do not improperly use information obtained because of the director's position. This applies even after a director has left the company.
Prevent insolvent trading
Prevent the company from incurring a debt while insolvent or where there are reasonable grounds to suspect insolvency. The safe harbour in s 588GA applies where the director is developing a course of action reasonably likely to lead to a better outcome.
Disclose material personal interests
Disclose any material personal interest in a matter relating to the affairs of the company to the other directors, before the matter is considered at a directors' meeting.
Keep financial records
Ensure the company keeps written financial records that correctly record and explain its transactions and financial position, and would enable true and fair financial statements to be prepared.
Ensure financial reports are true and fair
Directors of reporting entities must ensure that the company's financial report complies with the accounting standards and presents a true and fair view. The directors' declaration is a specific obligation.
Comply with the continuous disclosure regime
For listed companies, directors must ensure the company complies with the continuous disclosure rules — disclosing material information that a reasonable person would expect to have a material effect on share price.
Observe general-law fiduciary duties
In addition to the statutory duties, directors owe general-law fiduciary duties — to avoid conflicts of interest, not to make secret profits, and to exercise powers for the purposes for which they were conferred.
What happens if you do not comply
Civil penalties of up to $1.565 million (individuals) or 3x the benefit derived or 10% of annual turnover (corporations) for breaches of ss 180-183. Criminal penalties up to 15 years imprisonment for reckless or dishonest breach of s 184. Directors may also be disqualified from managing corporations and held personally liable for insolvent trading debts.
Reporting requirements
Directors of public and large proprietary companies must sign a directors' declaration each financial year. Material personal interests must be disclosed to the directors and, for listed companies, through continuous disclosure. ASIC enforcement actions become public at the civil penalty stage.
What firms should do today
- Ensure every director has a current understanding of the company's financial position and the reports they review
- Document every significant board decision with the underlying reasoning — vital evidence if the business judgment rule is relied upon
- Maintain a conflicts register and update it at every board meeting
- If the company is approaching insolvency, take written advice and consider the safe harbour under s 588GA
- Review and sign directors' and officers' insurance annually
- For listed companies, run a continuous disclosure check before every market-sensitive event
Compliance with Quillio
Quillio drafts board minutes, directors' resolutions, conflict declarations, and insolvent-trading memos in current AU format with the statute and authority cited. See /practice-areas/commercial-lawyers or start a free trial.
This guide is general information about director duties — not legal advice. Director liability is fact-specific and the safe harbours require careful documentation. Obtain specialist advice before relying on any safe harbour or undertaking a significant decision in a potential insolvency scenario.
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