The role of a director is one that draws numerous responsibilities. Directors are considered to have fiduciary duties owed to the company. It is crucial that directors comply with such duties as a failure to do so may leave them personally liable to civil or criminal penalties.
Directors owe the following fiduciary duties to a company:
1. Duty to act in good faith of the company as a whole
This duty requires the director to give proper consideration to the company’s interests when making decisions. For example, a director will be in breach of this duty if he/she fails to consider the company’s best interests when entering into a transaction that results in any disadvantage to the company.
2. Duty not to act for an improper purpose
A director cannot act in a manner that would advantage themselves without promoting the interests of the company.
3. Duties of care and diligence
A director has a duty to make informed decisions, especially when dealing with the company’s financial affairs. For example, a director would breach this duty if they received a balance sheet that did not balance and failed to ask for it to be corrected before making a financial decision.
4. Duty to retain discretion
Directors must not place themselves in a position where they cannot make decisions in the best interests of the company. For example, a director should not enter into transactions that would lead to them placing the interests of other parties before those of the company.
5. Duty to avoid conflicts of interest
This duty requires directors to put the interests of the company above their own. Directors that become aware of a potential conflict of interest are required to notify the board of such conflict.
6. Duty not to disclose confidential information
A director must not abuse confidential information obtained as a result of their position. For example, a director that discloses a company’s trade secret to a competitor will be in breach of this duty.
7. Duty not to abuse corporate opportunities
Similar to the duty not to disclose confidential information, a director must not take advantage of a corporate opportunity at the expense of the company. For example, a director that becomes aware of a new profitable client, would breach this duty if they were to enter into contract directly with the client rather than through the company.
It is important to note that in addition to the above fiduciary duties, directors must also comply with obligations imposed by legislation, such as those in the Corporations Act 2001.
If you require any information in relation to director’s duties, please contact our team of lawyers at The Quinn Group on (02) 9223 9166 or submit an online enquiry.