From 1 July 2027, applied isn't enough.A new director must have their Director ID issued and in hand before they're appointed. Today it's enough to have applied. Overseas directors applying on paper can wait around four weeks, so start early.
Australia regulates its companies closely, and a lot of that responsibility sits with directors personally. If you are a director of an Australian company, or you are about to appoint one, these are the duties to know.
Breaching them can lead to civil penalties, orders to pay compensation, being disqualified from managing companies and, in serious cases, criminal charges.
What directors' duties are
Directors' duties are legal obligations placed on directors, mainly by the Corporations Act 2001 (Cth) and the general law. ASIC investigates and enforces them. Other laws, including tax law, add obligations of their own.
Why Australia has them
From the 1980s into the early 2000s, Australia went through a run of major corporate collapses, among them the Bond group, Qintex and HIH Insurance. Large numbers of investors, creditors and policyholders lost money, and much of the blame landed on the people running those companies. The law was tightened in response, and the duties below are the result.
Who they apply to
Virtually every kind of director: executive and non-executive directors, nominee and resident directors, alternate directors, and people who act as directors without being formally appointed (de facto and shadow directors).
The core duties
This isn't a complete list, but these are the duties that matter most day to day.
Care and diligence
Directors must act with the care and diligence a reasonable person would bring to the role in that company. Inexperience isn't an excuse. You are expected to:
- take reasonable steps to guide and monitor management
- understand the fundamentals of the company's business
- keep informed about what the company is doing
- monitor its financial position
- ask questions when something doesn't look right
You don't have to know everything, and you can rely on experts. But you still have to bring your own judgment to what they tell you.
Good faith and proper purpose
Directors must act in good faith, in the best interests of the company, and for a proper purpose. The company's interests are not your personal interests, even if you founded the company and funded it yourself.
No improper use of position or information
You can't use your position, or information you have because you're a director, to gain an advantage for yourself or someone else, or to cause harm to the company. Taking the company's client list to start a competing business is a classic example.
Avoiding conflicts of interest
Directors must avoid actual and potential conflicts between the company's interests and their own, and disclose any material personal interest in a matter that relates to the company. In a public company, a director with a material personal interest generally can't be present or vote while that matter is considered.
Preventing insolvent trading
Directors must not let the company incur a debt when it is insolvent, or when taking on the debt would make it insolvent, if there are reasonable grounds to suspect insolvency. A director who does can be personally liable for that debt and faces civil penalties, and criminal charges if dishonesty is involved.
Before the company takes on more debt, you need to be satisfied it can reasonably pay its debts as they fall due. Good, current financial information is how you know.
The safe harbour
The Corporations Act gives directors some protection from insolvent trading liability while they're genuinely working on a turnaround. Broadly, if you suspect the company may become insolvent and you start developing a course of action reasonably likely to lead to a better outcome than an immediate administration or liquidation, debts incurred in connection with that course of action may be protected. The protection has conditions, including keeping proper books, paying employee entitlements and keeping tax lodgements up to date, so get advice early if you think you need it.
Tax obligations directors carry personally
Under the director penalty regime, the ATO can make directors personally liable for a company's unpaid PAYG withholding, GST and superannuation guarantee. This applies to resident and nominee directors as much as to anyone else, which is one reason I ask for regular financial information once I'm appointed.
Know your duties before you need them
If you're a director, learn these duties now rather than after something goes wrong. ASIC continues to take a close interest in how directors behave, and Director IDs mean every director is now individually identified and traceable across the companies they're involved in.
This is not legal advice. It's general information only. Please speak to a legal representative about your company's situation before you act on it.