What is a Business Director

Responsible for coming up with business goals, a business director is a corporate finance manager at a company whose job duties often include analyzing reports from department managers and regularly reporting to the executive board. They are the ones who are responsible for monitoring day-to-day operations, assessing budgets and other finance-related issues, and ensuring that cash flow remains stable.  

A director has many duties to perform for the company. As directors, they are subject to statutory, fiduciary, and common law duties. The Corporation Act 2001 or The Corporation Act imposes additional fiduciary duties on directors of entities incorporated under that legislation. The appointed directors of companies must comply with the Corporations Act in carrying out their duties. 

What are the requirements that directors must follow under the Corporation Act? 

1. The duty to act with care and diligence 

As stated in the Corporations Act, Section 180 provides a civil obligation that a director or other officer MUST at all times exercise a reasonable degree of care and diligence when exercising powers and discharging duties.  

The requirement of a director or officer who needs to exercise a reasonable degree of care and diligence will only be satisfied with a particular business judgment where they: 

• Make the judgment in good faith and for a proper purpose 
• Do not have a material personal interest in the subject matter of the judgment 
• Inform themselves about the subject matter of the judgment to the extent they reasonably believe is appropriate and lastly;
• Rationally believe that the judgment is in the best interests of the corporation. 

Delegation to colleagues or subordinates within the organization does not satisfy the levels of care, skill, and diligence required. They must take an active interest in the company’s affairs and understand the company’s business.

2. Duty to Act in Good faith in the best interests of the corporation and for a proper purpose 

The Corporation Act Section 181 imposes a civil obligation on directors, secretaries, and other officers of a corporation to exercise their power and discharge their duties in good faith, in the corporation’s best interest, and for a proper purpose. The example given is those directors who abuse their power to benefit self-interest rather than the interest of the corporation as a whole. Doing this is considered a breach of the director’s duty, as stated in Section 184 (1).

3. The duty to avoid improper use of position 

A civil obligation stated in Section 182 of the Corporation Act prohibits a director, secretary, other officers, or employee of a corporation from making improper use of their position to gain an advantage for themselves or someone else or from causing detriment to the company. Additionally, Section 184(2) specifies that directors, other officers, or employees of a corporation commit an offense if they use their position dishonestly. 

4. The duty to avoid improper use of information 

Another civil obligation stated in Corporation Act (Section 183) is that a person who obtains information because they are a director, officer, or employee of a corporation must NOT improperly use that information to gain an advantage for themselves or cause detriment to the corporation. This duty is of particular significance where the director has interests in the industry to which the Government Board relates. 

Incorporated with this section is Section 184(3), which states that directors, officers, and employees of corporations may also commit a criminal offense where information is used dishonestly. 

5. The duty to disclose certain interests 

Section 191 of the Corporations Act requires a director of a company with a material personal interest in a matter that relates to the affairs of the company to give the other directors notice of the interest unless one of the specified exceptions applies. The notice must include details of the nature and extent of the interest and be given at a directors’ meeting as soon as practicable after the director becomes aware of their interest in the matter. 

What will happen if you breach your director’s duties? 

Breach of statutory duties draws penalties under the Corporations Act which range up to $200,000. In Australian law, directors can be held liable for breaching their directors’ duties in both civil and criminal proceedings. Among the consequences of a director breaching their duties are, but are not limited to: 

• Commercial consequences 

Companies that fail to comply with specific duties may be scrutinized by regulators and investors. This may also lead to a loss of reputation, both with the company as a whole and the director personally. 

• Criminal sanctions 

The Act includes many duties that can lead to substantial criminal penalties, including imprisonment for those who fail to comply with them. 

• Disqualification 

Courts and ASIC may disqualify directors for a specified period if they fail to fulfill their duties. 

• Civil Liability 

Directors may be subject to significant fines from ASIC for failing to meet specific duties. Those who have breached their obligations and have led to the firm accumulating debt or other liabilities may also be held accountable by the company’s creditors. 

Contact Calculated Matters at business@calculatedmatters.com.au to set up a meeting or arrange a time to speak with us if you are a director and have questions regarding your duties.