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Do your directors know their duties?

Directors must be aware of the legal duties imposed on them when they take a position on a board. A breach of these duties can trigger serious consequences for an individual in both a professional and personal capacity. Depending on the nature of the breach and the legislation involved, possible consequences may include:

  • personal liability - being held personally liable for civil penalties, compensation, debts and financial losses, and tax obligations;
  • criminal conviction;
  • disqualification as a director by the courts, Australian Securities and Investments Commission (ASIC) or the Australian Charities and Not-for-profits Commission (ACNC); and
  • reputational damage.

What are the director’s duties? 

Directors duties exist at both common law and statute law, contained within various Acts. At the outset, the fundamental duties of an Australian company director can be summarised as:

  • using care, skill and diligence in undertaking their role;
  • acting in good faith and in the best interests of the company;
  • exercising power and using information for a proper purpose;
  • avoiding conflicts of interest;
  • preventing insolvent trading; and
  • ensuring the company’s financial records are accurate.

Under statute law, these duties are established under legislation such as the Corporations Act 2001 (Cth) (Corporations Act), Australian Charities and Not-for-profits Commission Act 2012 (Cth) (ACNC Act), and state and territory legislation for incorporated associations or co-operatives. 

In a broader sense, directors must also be aware of other statutory duties that may be imposed on them, such as work health and safety, privacy and environmental protection legislation on a Commonwealth, state and territory level, which support Australian corporations law.

Common law derives from court decisions where statute law has been applied and interpreted by the residing judiciary. The fundamental duties contained within the Corporations Act generally form the basis to leading precedence at common law. 

Professional development for directors

Given how critical it is for directors to understand the obligations imposed on them at the earliest opportunity after they join a board, Effective Governance has developed a program that can be tailored to suit your organisation’s legal context. The program addresses director obligations and duties imposed by statutory law and common law in addition to the requisite compliance standards under the existing corporate governance framework of the organisation. 

The professional development program will provide outcomes which will further develop the board and the ability to contribute to organisational success, as such, it is an ideal component of a director induction program. It can be delivered as a one-day workshop or as two half-day workshops to fit your board’s requirements. 

The program focuses on two key areas: director duties and board responsibilities. As well as gaining an understanding of their legal duties, directors will also discover practical tips to limit their potential exposure to personal liability. It incorporates practical case studies and activities for discussion by participants to ensure an engaging learning experience. 

For more information about our director duties program or other director professional development services, contact us.
 

Authors
Ian Doyle
Senior Advisor
Ian Doyle is Human Resources Professional with over 25 years’ experience in HR roles in the Banking and Insurance Industries. Ian started his Human Resources career in Westpac ultimately having responsibility for Senior HR portfolios across the Qld...

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