What is the role of a director?
A director is responsible for overseeing a company’s operations and finances. You must ensure you are compliant with the Corporations Act 2001 (Cth) and have high standards of professional and ethical behaviour.
In addition to this acting with honesty and in the best interest of the company and stakeholders whilst fulfilling obligations to various parties is necessary. Accurate record-keeping, including financial, property, and investment records, and contracts is crucial to maintain smooth operations and minimise errors.
What are the director duties?
As a director, you hold significant responsibilities regarding the operation and management of the company. Listed below are several obligations you must fulfill as a director.
1. Care and diligence
Be responsible for overseeing the company’s activities and must exercise care and diligence in their duties. The level of care and diligence required varies based on the director’s responsibilities, level of involvement, and authority within the company. These duties include:
• Taking appropriate measures to guide and monitor the company’s management.
• Have an understanding of the company’s operations and business model.
• Staying informed about the company’s activities and evaluate whether the business management practices are safe and proper.
• Keep track of corporate matters and policies.
• Regularly reviewing financial statements and contents to understand the financial status of the company.
• Ask questions or make additional inquiries as needed, especially those in relation to the financial statements.
2. Good Faith
Use your authority and fulfill your obligations with honesty and integrity, putting the interests of the company first. This means considering the interests of shareholders and creditors, not providing false or misleading information, and avoiding actions that could harm the company for personal benefit.
3. No improper use
Under section 182 of the Corporations Act, you are prohibited from misusing their position in a way that results in personal gain or harm to the company. Therefore, you must not use your position to benefit yourself or others at the expense of the company. Examples of such misuse include:
• Misappropriating company funds or mixing them with personal funds
• Engaging in illegal contracts
• Accepting bribes, secret commissions, or other undisclosed benefits
• Taking corporate opportunities that should have gone to the company without consent or knowledge of the company.
4. Avoid conflict of interest
You have a legal obligation to avoid any conflicts between your personal interests or duties and your responsibilities to the company. If there is a potential or actual conflict, you must disclose any relevant personal interests to the board and abstain from participating in the discussion or vote on the matter. The Corporations Act section 191-194 sets out the directors’ responsibilities and obligations, and violating them may lead to legal consequences.
5. Prevent insolvent trading
Under section 588G of the Corporations Act, you have a responsibility to prevent insolvent trading. Therefore, you must not allow the company to continue trading if it is already insolvent or likely to become insolvent. To meet this obligation, you must regularly monitor the company’s financial situation by reviewing financial reports and statements. If you fail to do so and the company incurs debts during the insolvent trading period, you could be held personally liable for those debts.
Consequences of breaching Duties
If you breaches your duties, you could face serious consequences such as:
1. Criminal sanctions under the Corporations Ac includes fines and potential imprisonment for up to 15 years.
2. Civil penalties under the Corporations Act includes fines and actions by shareholders against the director.
3. Disqualification where both ASIC and the courts have power to disqualify directors for long periods of time if they fail to comply.
4. Commercial consequences where a company will likely face greater scrutiny. Dependent on how the market and stakeholder reacts to the breach this could result in the company ceasing to exist.
How Wilson & Assoc can help?
Our friendly team has experience in managing and understanding a director’s responsibilities and needs. We can help you learn how to run your business and make informed decisions whilst upholding your duties and obligations. If you also have not applied for a director ID please click here for more information.
Source: Lawpath & Australian Securities & Investments Commissionis res
Disclcaimer: The information provided within this article is general information only. None of the comments in these notes are intended to be advice, whether legal, financial product or professional. You should obtain specific advice regarding your particular circumstances from a tax or legal professional.
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