By Rachel Martin, Argon Law Special Counsel
Being a company director comes with significant responsibility. In Queensland, directors are legally required to act in the best interests of their company and meet strict standards of conduct under Australian law.
Understanding director’s duties is essential not only for directors themselves, but also for shareholders, who rely on directors to manage the business properly and protect the company’s value.
This article provides a clear overview of the key duties’ directors must comply with, and what shareholders should be aware of to ensure their directors are meeting their legal obligations.
Director’s duties are legal obligations imposed on people who manage or control a company. These duties apply regardless of whether the director is a sole director or one of many, a shareholder or non-shareholder, paid or unpaid, or actively involved day-to-day or not.
In most cases, director’s duties in Queensland are governed by the Corporations Act 2001 (Cth), along with general law. Failing to comply with these duties can result in personal liability, financial penalties, disqualification, or even criminal consequences in serious cases.
Directors must act with the level of care and diligence that a reasonable person would exercise in the same position.
This means directors should stay informed about the company’s financial position, understand major transactions and risks, ask questions and seek advice when needed, and actively participate in decision-making.
A director who simply approves decisions without proper consideration or ignores warning signs may be in breach of this duty.
Directors must act honestly and for proper purposes, putting the company’s interests ahead of their own.
This duty requires directors to make decisions that benefit the company as a whole, avoid favouring personal interests or related parties, and consider long term consequences, not just short term gains. Part of the duty to act in the best interests of the company is avoiding actual or perceived conflicts, and in all cases disclosing any conflicts to the board, so that the appropriate decision can be made.
The best interest of the company generally refers to the company itself, not individual shareholders.
Directors must not misuse their position to gain a personal advantage or cause harm to the company.
Examples may include using company information for personal benefit, directing business opportunities to another entity they control, or making decisions that benefit related parties without proper disclosure.
Directors often have access to sensitive or confidential information. That information must not be used improperly, even after a director resigns.
This includes financial information, client or supplier details, and strategic or commercial plans.
One of the most critical duties for directors is ensuring the company does not trade while insolvent.
A director must not allow the company to incur debts if they know, or should reasonably know, that the company cannot pay its debts as and when they fall due.
This duty requires directors to regularly review cash flow and financial reports, act quickly if financial distress arises, and seek professional advice early.
Breaches of insolvent trading laws can expose directors to personal liability for company debts.
While shareholders are not responsible for managing the company, they have a strong interest in ensuring directors are compliant.
Shareholders should be aware that directors owe duties to the company, not directly to shareholders.
Poor governance can reduce company value and increase risk, and directors can be held personally accountable for breaches.
Shareholders can take practical steps to protect their interests, including reviewing company financial performance and reporting, ensuring proper governance structures are in place, and seeking legal advice if concerns arise about director conduct.
In some cases, shareholders may have rights to take legal action if directors fail to meet their duties.
Breaches of director’s duties can result in civil penalties and fines, compensation orders, director disqualification, and criminal charges in serious cases.
The consequences often extend beyond the company itself and can significantly impact a director’s personal assets and reputation.
Whether you are a director seeking to understand your obligations, or a shareholder concerned about governance and compliance, getting the right legal advice early is essential.
As leading solicitors in commercial and corporate law, the Argon Law team has helped Queensland directors navigate these duties and avoid breaches. We regularly assist clients with director duty advice and compliance reviews, shareholder and director disputes, insolvency risk management, corporate governance structures, and shareholder agreements and constitutions.
Our team provides practical, commercially focused advice to help you manage risk and protect your position. Contact Argon Law today.
A. There are no specific state level laws which apply to director’s duties in Queensland. Director’s duties are primarily governed by the Corporations Act 2001 (Cth), which applies at the national level, along with common law principles developed by the courts.
A. Yes. Director’s duties apply to all companies, regardless of size. In fact, company directors of small businesses and family companies are often at higher risk of breaches as a result of roles and responsibilities easily overlapping.
A. Yes. In certain circumstances, particularly insolvent trading, directors can be personally liable for debts incurred by the company.
A. No. Shareholders generally do not owe director’s duties unless they are also acting as directors or are effectively controlling the company’s decisions. However, shareholders hold significant interest in ensuring their directors are compliant.
A. If you’re concerned you may have breached a duty as a director, seeking legal advice early is essential. Addressing potential issues quickly can reduce your risk and may prevent further liability.
A. In many cases, directors can rely on advice from accountants, lawyers, or other professionals, provided the reliance is reasonable and the director has acted in good faith. This may mitigate the risk of being in breach of a director’s duty.
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