Directors’ Duties: Navigating the Rules to Protect Yourself

---

Running a company in Australia means directors carry serious responsibilities — our regime is one of the strictest in the world, and breaches can lead to personal liability, fines, disqualification, or even criminal charges. 

At Visual Legal, we help directors understand these duties in plain language so you can make confident, informed decisions without unnecessary stress.

Here’s a clear overview of the key duties under the Corporations Act 2001 (Cth):

1. Duty of care and diligence (s 180(1))

You must exercise the care and diligence a reasonable person would in your position. The business judgment rule offers protection if your decision is made in good faith, for a proper purpose, without material personal interest, after properly informing yourself, and with a rational belief it’s in the company’s best interests.

2. Good faith and proper purpose (s 181)

Powers must be exercised honestly and for the company’s legitimate benefit. The test is objective: would a reasonable director consider this action to be in the company’s best interests? Honest belief alone isn’t enough — the underlying purpose must be proper.

3. Proper use of position or information (ss 182–183)

You cannot misuse your role or inside information to gain an advantage for yourself (or others) or cause detriment to the company.

4. Preventing insolvent trading (s 588G)

Directors must not allow the company to trade while insolvent (unable to pay debts as they fall due). Breaches can result in personal liability for debts incurred, civil fines up to $200,000 (or higher), disqualification, or — if dishonest — criminal prosecution with up to 5 years imprisonment and penalties exceeding $600,000.

5. Disclosure of material personal interests (ss 191–195)

Declare any material personal interest in company matters to the board promptly. In public companies, you generally cannot be present or vote on the issue unless the board or ASIC approves.

What happens if you breach these duties?

These are civil penalty provisions — ASIC can seek fines, disqualification orders, or compensation orders. Dishonest or reckless breaches can become criminal offences. Insolvent trading carries particularly severe consequences, including personal debt liability and potential jail time.

Real-world reminders

• GetSwift (2023): The Federal Court imposed record penalties after repeated continuous disclosure breaches and misleading conduct — the former executive chairman was fined $2 million and banned from managing corporations for 15 years; another director fined $1 million and banned for 12 years. It underscores how seriously courts treat repeated compliance failures.

• The Star Entertainment Group (ongoing): ASIC pursued multiple former directors and executives for failing to manage non-financial risks, including exposure to money laundering and criminal associations at the casino. Some executives have already received penalties (fines up to $180,000 and short disqualifications), while proceedings against others continue. The case highlights ASIC’s increasing focus on board-level oversight of all risks, not just financial ones.

• Sunnya Pty Ltd v He [2025] NSWCA 79: The NSW Court of Appeal found former directors breached s 181 by pursuing transactions for improper purposes (e.g., entrenching control or exploiting opportunities post-resignation), even where they held sincere beliefs in commercial benefits. The decision reinforces that good faith alone is insufficient — the purpose must be objectively legitimate, and the business judgment rule does not protect decisions driven by improper motives.

Directors’ duties aren’t about being perfect — they’re about acting reasonably, honestly, and with proper purpose. If you’re facing a governance decision, potential conflict, or compliance concern, early advice can prevent costly mistakes.

At Visual Legal, we guide you through these obligations with straightforward explanations and practical support. 

Ready to talk it through? Book a free consultation — we’ll assess your situation together, no pressure.