Company Director Duties (AU) glossary
Company directors in Australia owe duties imposed by statute (primarily the Corporations Act 2001), general law (fiduciary and tortious), and equity. Breaching these duties can result in civil penalties, compensation orders, disqualification, and criminal prosecution. This glossary explains the terms practitioners need when advising directors.
This glossary covers 40 terms that corporate and insolvency lawyers encounter when advising company directors on their obligations under Australian law. Each definition references the relevant Corporations Act 2001 provision or case authority.
Definitions
Alternate director
A person appointed by a director to act in their place during absence — the alternate owes the same duties as the appointing director while acting.
ASIC
The Australian Securities and Investments Commission — the regulator responsible for enforcing directors' duties under the Corporations Act.
Business judgment rule
The statutory defence to a breach of the duty of care, available where the director made a judgment in good faith, for a proper purpose, without material personal interest, and after informing themselves.
Care and diligence
The statutory duty requiring directors to exercise their powers with the degree of care and diligence a reasonable person in their position would exercise.
Chief executive officer
An officer of the company who may owe the same statutory duties as a director under the Corporations Act.
Civil penalty
A pecuniary penalty imposed by a court for breach of a civil penalty provision — directors can face penalties of up to $1.11 million per contravention.
Compensation order
A court order requiring a director to compensate the company or a third party for damage resulting from a contravention of their duties.
Conflict of interest
A situation where a director's personal interests or duties to another entity conflict with their duty to the company — must be disclosed and managed.
D&O insurance
Directors and officers liability insurance — indemnifying directors against legal costs and damages from claims arising from their role.
De facto director
A person who acts in the position of a director without being formally appointed — subject to the same duties as a validly appointed director.
Delegation
The entrustment of duties to a committee or individual — directors remain responsible for oversight and cannot delegate their duty of care.
Director
A person appointed to the position of director or acting in that position, regardless of the name given to their role — the central duty-bearer under the Corporations Act.
Director identification number
A unique identifier that every director of an Australian company, registered body, or Aboriginal and Torres Strait Islander corporation must apply for.
Disclosure
The obligation to notify the board of any material personal interest in a matter being considered — failure to disclose is a criminal offence.
Disqualification
An order prohibiting a person from managing corporations — imposed by a court or by ASIC administratively for specified contraventions.
Duty not to improperly use information
The duty prohibiting directors from using information obtained through their position to gain a personal advantage or cause detriment to the company.
Duty not to improperly use position
The duty prohibiting directors from improperly using their position to gain a personal advantage or cause detriment to the company.
Duty to act in good faith
The duty to exercise powers and discharge duties in good faith in the best interests of the corporation and for a proper purpose.
Duty to prevent insolvent trading
The duty to prevent the company from incurring debts when there are reasonable grounds for suspecting it is or would become insolvent.
Fiduciary duty
The general law duty of loyalty owed by directors to the company — underpinning the statutory duties and imposing obligations of good faith, no-conflict, and no-profit.
Good faith
Honesty of intention and genuine belief that the action is in the best interests of the company — the subjective component of the s 181 duty.
Indemnity
An agreement by the company to cover a director's legal costs or liability — permitted under the Corporations Act with exceptions for dishonesty and penalties.
Insolvent trading
The contravention that occurs when a director allows a company to incur debts while insolvent or likely to become insolvent — attracting personal liability.
Material personal interest
An interest of a director in a matter being considered by the board that is of sufficient significance to give rise to a real or sensible possibility of conflict.
Officer
A person who makes or participates in making decisions that affect the whole or a substantial part of the business — includes directors, secretaries, and senior executives.
Proper purpose
The requirement that directors exercise their powers for the purpose for which they were conferred — not for a collateral or extraneous purpose.
Ratification
Approval by shareholders of director conduct that would otherwise be a breach — limited in its ability to relieve directors from statutory duties.
Reliance defence
The statutory defence to a breach of duty where the director relied in good faith on information or advice from a reliable source.
Safe harbour
The safe harbour from insolvent trading liability available where a director starts developing a course of action reasonably likely to lead to a better outcome for the company.
Secretary
A company officer responsible for maintaining registers, lodging documents, and advising on governance — owing the same statutory duties as a director.
Shadow director
A person whose instructions or wishes the directors are accustomed to act on — treated as a director for duty purposes despite not being formally appointed.
Small company solvency resolution
An annual resolution by eligible small companies that the company is solvent — a simplified solvency check replacing audited financial reports.
Sole purpose test
The requirement that superannuation fund trustees maintain the fund solely for retirement benefits — a heightened duty applying to directors of corporate trustees of super funds.
Statutory demand
A formal demand for payment of a debt exceeding $4,000 — failure to comply within 21 days creates a presumption of insolvency.
Stepping-stone liability
The principle that breaching one duty (such as misuse of position) can be the foundation for liability under another provision (such as accessorial liability).
Voluntary administration
An insolvency process where an administrator takes control to investigate the company's affairs — the directors' decision to appoint an administrator is itself a duty decision.
Whistleblower protection
Statutory protections for persons who report contraventions of the Corporations Act — companies must have a whistleblower policy, and directors must not cause detriment to whistleblowers.
Winding up
The process of bringing a company to an end — court-ordered winding up on insolvency grounds is the ultimate consequence of insolvent trading.
Written resolution
A resolution passed by directors without a meeting, by signing a document — valid if all directors entitled to vote sign.
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These definitions are general explanations for educational purposes — not legal advice. Directors' duties are complex and context-specific. Always verify against the current Corporations Act, ASIC regulatory guides, and case law.
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