Directors duties and the Corporations Act 2001
The Corporations Act 2001 outlines directors’ duties and responsibilities in companies’ management and operation. These duties ensure that directors act in the company’s and its stakeholders’ best interests.
The critical director’s responsibilities under the Corporations Act 2001 are:
- Duty to act in good faith.
- Duty to exercise care and diligence
- Duty to avoid conflicts of interest:
- Duty not to misuse information or position
- Duty to prevent insolvent trading
- Duty to act in the best interests of the company
- Duty to exercise powers for a proper purpose
- Duty to maintain financial records
- Duty to disclose personal interests
Directors who breach their duties under the Corporations Act 2001 can face the following consequences:
- Civil Liability: Directors can be held personally liable for any losses the company or its stakeholders suffered due to their breach of duty.
- Fines and Penalties: Regulatory authorities can impose fines and penalties on directors who breach their duties.
- Disqualification: Disqualification orders prevent individuals from holding company directorships or other senior positions.
- Criminal Charges: In fraud, dishonesty, or deliberate misconduct, directors may face criminal charges.
- Compensation Orders: Paying back misappropriated funds or covering losses resulting from their actions.
- Reputational Damage: Breaches of duty can affect their professional standing and future career opportunities.
- Legal Costs: Covering the legal costs associated with defending themselves in court against allegations of breaching their duties.
- Shareholder Lawsuits: Lawsuits against directors for duty breaches, seeking compensation or injunctions.
- Regulatory Action: ASIC may take action against directors for breaches of duty. This could include issuing public notices or statements, conducting investigations, or imposing sanctions.