What are the Duties of a Company Director in Australia?

 

Are you a newly appointed company director?

Or perhaps you're contemplating taking on this type of role or have been directing and leading a company for quite some time. Regardless of your experience level, your directorial responsibilities lay the foundation for the smooth functioning of the company and the corporate landscape at large.

Therefore, it's essential to refresh your knowledge of the applicable commercial laws and your duties and liabilities as a company director.

Apart from understanding the directorial duties, it's essential that you collaborate with an experienced company lawyer in Sydney to safeguard your business and protect yourself from potential legal troubles.

In this guide, we'll delve into the key duties that all Australian directors are bound to follow and the legal framework governing your actions as a director.

So, grab a cup of your favourite brew and let's get started!

Which framework governs the director's duties in Australia?

There is no doubt that the Australian legal framework governs the duties of a company director. This legal system functions as the backbone of how companies in Australia must operate and how directors must act.

Within this vast legal framework, a particular piece of legislation - the Australian Corporations Act 2001, highlights and governs companies and corporate establishments in the country.

And therefore, directors are legally bound to follow their core duties. Unintentional or blatant violations of responsibilities or code of conduct as a director can land you in serious legal consequences.

To avoid such scenarios, it is highly recommended that you collaborate with a company lawyer expert in Australia to avoid any complications during your term as a director.

In addition to the Australian legal system, company constitutions, contracts, and shareholder agreements further specify the scope of your responsibility, authority and the mechanisms for decision-making within the organisation.

What are the roles and responsibilities of a company director?

Fiduciary Duties

Fiduciary duties represent the core duties and responsibilities of a director. Fiduciary duties require you to act in good faith, demonstrate honesty and consider the best interest of the company.

This duty ensures you prioritise the welfare of the company above your personal interests and shareholder concerns/personal interests. If you are in need of a company lawyer to understand your legal responsibilities, search for "commercial lawyers near me" to find the best legal experts in Sydney, because this is not the time to leave things to chance.

Duty of Care and Diligence

As a company director, you are obligated to exercise reasonable care, skill and diligence while making any critical decisions that may affect the company immediately or in the future. 

You need to be completely aware and informed about all the internal and external affairs, evaluate potential risks and ensure to make the best decisions with the available information.

Financial Reporting and Compliance

Financial systems and documentations are the foundation of a company. Therefore, as a director, you will be accountable for maintaining accurate financial records and preparing financial statements that comply with Australian accounting standards.

You also need to ensure compliance with taxation and other relevant laws and regulations. This is where the importance of an experienced company lawyer becomes quite evident.

Duty to Prevent Insolvent Trading

Insolvency generally occurs when a firm is unable to pay its debts. As a company director, you need to be vigilant to avoid trading while the company is in a state of insolvency.

Breaching or failing to comply with this duty could translate into personal liability for debts incurred during that period.

Disclosures and Conflicts of Interest

During your tenure as the company director, you must disclose any personal interest or conflict of interest you have in any company transactions.

Transparency is crucial to maintain the trust of shareholders and stakeholders.

Director Identity Number

You need a director ID if you're a director of a:

company registered with the Australian Securities and Investments Commission

External link (ASIC) or the Office of the Registrar of Indigenous Corporations

External link (ORIC)

corporate trustee, for example of a self-managed super fund (SMSF)

registered Australian body, for example an incorporated association registered with ASIC, like sporting clubs that trade outside of their state or territory

charity or not-for-profit organisation that is a company or Aboriginal and Torres Strait Islander Corporation.

It is an offence not to obtain a Director Identity Number and keep up to date.  A Director Identity Number is obtained from the Australia Business Registry Services within the timeframes set up when this identity scheme was established and penalties may be imposed for non-compliance.

The scheme was designed in part to discourage illegal phoenix activity. This is where a company is liquidated, wound up or abandoned to avoid paying its debts. A new company is then started to continue the same business activities without the debt which advantages the shareholders and directors of the new company to the detriment of creditors of the liquidated company.  It is also used to prevent fraud where people hold themselves out to be directors of a company with false or fraudulent director identities because the data base can be searched to verify the identity of a person who claim to be a director of a company.

Wrapping up

A company director in Australia plays a pivotal role in steering the success and integrity of a company. You can make a significant impact on your organisations and the broader business community.

Remember, it's always good to have an experienced legal companion by your side who understands commercial law and will help steer you away from complexities during your term as a director.