What are a directors statutory duties?

Directors, Shadow Directors, and Officers are individuals with specific roles and responsibilities in a corporation, including duties of care, good faith, and disclosure.

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All corporation directors, shadow directors and officers owe statutory obligations to the corporation under the Corporations Act 2001 (Cth) (‘Corporations Act’). These obligations are expressed as directors’ duties. They are owed to the company as a whole and operate in addition to any general law duties.

Who is a Director, Shadow Director or Officer?

A person is a director if they were appointed as a director, or they were appointed as an alternate director and act in that capacity. Alternatively, a person who was not validly appointed as a director but continues to act in the position of a director is deemed to be a director.

If the directors of a company are accustomed to act in accordance with another person’s or company’s instructions, the aforementioned person or company is regarded as a shadow director.

An officer includes a director or secretary of the corporation; a person who makes or participates in making decisions that affect the whole or a substantial part of the corporation; a person who has capacity to significantly affect the corporation’s financial standing; or a person with whose instructions the directors of the corporation are accustomed to act.

Duty of Care and Diligence

Found in s. 180(1) of the Corporations Act, the duty of care and diligence requires directors and officers to exercise their powers with the degree of care and diligence that a reasonable person would exercise if they were a director or officer of a corporation in the first corporation’s circumstances, and held the same office and responsibilities as the director or officer concerned.

The minimum standard of care required by s. 180(1) is that each director has a basic understanding of, and is kept informed about, the company’s business activities. However, the expected standard of care may increase from the minimum depending on the company’s circumstances and the actual responsibilities held by the director or officer.

Duty to Act in Good Faith

The duty to act in good faith (s. 181(1)(a) Corporations Act) requires directors to act honesty and in the best interests of the company. The best interests of the company are those interests of the existing, current shareholders as a whole. Subjective and objective tests are applied in determining whether a director has breached this duty.

Duty to Act for a Proper Purpose

S. 181(1)(b) of the Corporations Act requires directors to act for a proper purpose. In determining whether a director has breached this duty the court will consider the purpose for which the director acted as a matter of law and fact, and will ask, but for the presence of the improper purpose, would the director have exercised their power?

Duty to Disclose Material Personal Interest

If a director has a material personal interest in a matter that relates to the affairs of the company, they must provide the other directors notice of the interest, unless a relevant exception applies (s. 191(1) Corporations Act). A material personal interest is one that has the capacity to influence the vote of the particular director.

Duty Not to Mis-Use Information or Position

A person who has obtained information because they are, or have been, a director, other officer, or employee of a corporation must not improperly use that information to gain an advantage for themselves or someone else, or to cause detriment to the corporation (s. 183(1) Corporations Act). Similarly, a director, secretary, other officer, or employee of a corporation must not improperly use their position to gain an advantage for themselves or someone else, or cause detriment to the corporation (s. 182(1) Corporations Act).

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