[ESTABLISHING A BUSINESS ENTITY IN AUSTRALIA]
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Director’s Duties Director’s duties in respect of Australian companies are largely set out in the Corporations Act, however there are some duties which derive from Australian common law. These duties include: • Duty of care and diligence – Directors must act with a degree of care and diligence in performing their role as a director. The relevant level of care and diligence is measured against the expectation that a reasonable person would have of a person acting in the capacity of a company director. A director may not be liable for breach of their duty to exercise care and diligence, if it can be established that the director: a) made the relevant decision in good faith and for a proper purpose; b) reasonably believed the decision was in the best interests of the company, after having made all reasonable inquiries necessary to inform themselves about the subject matter of the decision; and c) made the relevant decision while having had no personal interest in the matter. • Duty to act honestly in good faith – Directors must act in the best interests of the company as a whole and for a proper purpose. Broadly speaking, this duty requires a director to exercise independent judgement when acting on behalf of a company, to ensure that the best interests of the company are (objectively) paramount at all times. • Duty not to improperly use inside information or position – Directors must not use their position (or any information
that they gain by virtue of their position) to gain an advantage for themselves or someone else, or to the detriment of the company. • Duty to avoid a conflict of interest and to disclose material personal interests – Directors must make clear disclosures to the company where the affairs or business of the company relate to matters in which the director has a material personal interest. In this regard, it is also worth noting that directors of public companies are required to obtain shareholder approval for transactions which involve their related parties and make disclosures to the market in respect of the director’s personal interests. • Duty to avoid insolvent trading – Directors have a duty to ensure that a company does not trade while insolvent, or when the director suspects that the company might be insolvent. • Duty to keep proper accounts and records – Further to the duty to ensure that a company does not trade whilst insolvent, directors must keep themselves informed of the accounting position of the company, as well as the company’s mandatory financial reporting obligations (if applicable). Director’s Liability In Australia - given that companies are separate legal entities - company directors are generally not personally liable for the debts of the company. However, there are some circumstances where a director may be personally liable for a company’s debt, or where a director’s conduct may subject them to civil and criminal penalties, as well as damages. Examples of such circumstances include:
ILN Corporate Group – Establishing a Business Entity Series
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