The previous blog post talked about the powers directors hold to affect the company and in the words of Benjamin Parker in Spiderman, “with great power comes great responsibility.” Although directors have extensive powers, these powers are so that directors can adequately fulfill the host of duties and responsibilities required of them as directors. Failing to satisfy these duties can lead to significant personal liabilities and so it is important to be fully aware of what you as a company director are required to do and not do.
The most important and broadest duty a director is subject to is the fiduciary duty. The essence of the fiduciary duty is loyalty and good faith. Contained within the fiduciary duty is a host of other duties. These include a duty to avoid conflicts of interest, duty to act in good faith, duty to use powers for a proper purpose and more. While acting in their capacity as a director, directors must ensure that they are looking out for the interests of the company above their own and not using their position for personal advantage.
Directors also have a duty to exercise care, skill, and diligence in the execution of their duties. When acting on behalf of the company, directors are required to use the level of care, skill, and diligence that would be expected of a reasonable person when taking care of their own affairs. This means that directors are to act for the company as if they were acting for themselves, whether this be as simple as reviewing company accounts or making major decisions about future investments of the company.
Directors hold many other duties in relation to any companies they direct. Being a director of a company subjects you to a number of duties that must be strictly adhered to or else you risk some pretty severe consequences. If you breach directors’ duties you may be required to pay back any money you received as a result of your breach, you may need to pay money to the company in order to rectify the consequences of your breach, you may even be criminally sentenced. As you can see, making sure you know what duties you hold as a director is extremely important!
If you have further questions, please contact us at frank@franklaw.com.au.
This is not legal advice.