Being a board director is one of the most rewarding roles in business – and one of the most consequential. With that responsibility comes a suite of legal and fiduciary obligations that, if overlooked, can expose a director to significant risk.
At Source, we work with boards across industries every day, and one thing we hear consistently is this: directors are often surprised by just how broad their duties really are.
“Directors’ duties are the fundamentals of good governance – not complex in theory, but often overlooked in practice as they are quite broad. It’s an area where our company secretaries play a critical role, helping directors stay focused on the basics and apply them consistently in their decision-making.” – Lisa Dadswell, Managing Director at Source.
This article is designed to change that.
The landscape of directors’ duties
A director’s leadership shapes the success and sustainability of the company – and a big part of that is ensuring the company is compliant and always operating at the highest standards. The challenge is that obligations are constantly increasing, and it feels overwhelming to stay on top of it all.
Beyond protecting the integrity of the business and safeguarding shareholder interests, staying on top of legal obligations can prevent costly errors and bolster your reputation as a responsible leader.
Under the Corporations Act 2001 (Cth), your duties go well beyond showing up to board meetings and approving strategy.
We assembled this article to provide a practical and simple set of steps to ensure directors are always aware of their duties.
1. Act in good faith and for a proper purpose (ss 181)
Every decision you make must be one you genuinely believe is in the best interests of the company. Think long-term, consider the interests of minorities and creditors – particularly during periods of financial difficulty – and use your powers only for the purposes for which they were given.
In a corporate group, remember: every company operates as a separate legal entity and should be regarded as having its own interests, even if it is a wholly owned subsidiary (unless, that is, the constitution expressly authorises directors to act in the best interests of the holding company, provided relevant conditions are met).
2. Act with care and diligence (s 180)
Directors are expected to perform the role with the same care and diligence a reasonable director would in their position. This means:
- Stay actively informed about the company’s activities and performance
- Attend board meetings and review financial reports
- Seek expert advice when needed, and challenge proposals where appropriate.
The Business Judgement Rule can offer protection – but only if the director acted in good faith, without a material personal interest, on a properly informed basis and with a rational belief the decision was in the company’s best interests.
3. Prevent insolvent trading (s 588G)
Never allow the company to incur a debt unless there are reasonable grounds to believe it can be paid when due. Directors should regularly review financial statements, monitor cash flow, and avoid excessive risk. If insolvency concerns arise, consider the Safe Harbour provisions under s 588GA.
4. Avoid conflicts and disclose interests (s 191)
If directors have a personal interest in a company transaction it must be disclosed to the board. In many cases, this requires stepping aside from the discussion and the vote.
Transparency here is not optional. Directors should ensure disclosures are recorded in the minutes of the meeting and be cognisant that specific rules apply depending on whether it is a public or proprietary company board.
5. Protect confidential information (ss 182–183)
A director should not use their role or company information for personal gain or to harm the company. A good practical way to do this is to maintain the confidentiality of company information and refrain from disclosing sensitive information to unauthorised parties – including friends, family or former colleagues.
“When it comes to sensitive information, it’s better to be safe than sorry”, is what Lisa Dadswell, Managing Director at Source advises.
6. Keep records and meet reporting obligations (ss 286, Pt 2M.3)
Maintaining financial records and having a reliable accounting system are key obligations for Directors. A tip for directors here is to work with their company secretary and chief financial officer to ensure all annual financial reports are reviewed and approved by the Board. The company secretary and CFO are your allies in getting these approved and filed with ASIC within the required timeframes.
7. Delegate carefully – but never abdicate (s 198D)
Delegating does not mean abdicating. If you delegate a power, you remain responsible for how it is exercised unless you had reasonable grounds to believe the delegate was reliable and competent in relation to that power.
In our experience, the best directors often place a lot of emphasis on choosing their delegate and setting expectations early on and being clear about what delegation actually means. For example, delegation should be accompanied with clear instructions and expectations, and a regular cadence of monitoring performance of the delegate. And, of course, it goes without saying that it’s important to choose delegates who are competent in the activity they are undertaking.
“It often helps to have a good trail of the delegation and progress for auditability and improvement”, remarks Lisa.
8. Comply beyond the Corporations Act
Having clear policies and procedures addressing key compliance areas such as environmental protection, workplace health and safety, anti-bribery, taxation and modern slavery is also part of directors’ duties. And compliance beyond the act also involves overseeing a culture of ethical conduct and legal compliance throughout the organisation.
The stakes are real
Failing to meet your duties can result in civil penalties, criminal liability carrying a maximum of 5,000 penalty units or imprisonment, personal financial exposure – including being required to personally compensate the company for losses – disqualification from managing companies, and lasting reputational damage. These are not theoretical risks.
It is also worth noting that organisations such as incorporated associations, charities, government bodies, and entities established under specific Acts or royal charters are not governed by the Corporations Act 2001 (Cth) – however, they are still subject to directors’ duties under their own governing legislation or the common law.
Regardless of the legal source, the expectations of directors around integrity, diligence, and acting in the organisation’s best interests remain largely consistent across organisations.
We are here to help
Governance done well is not just about compliance – it is about leading with confidence, protecting what matters, and building organisations built to last. Our Governance team has deep experience supporting boards to understand and fulfil their obligations, from routine compliance reviews to complex governance challenges.
If you have any questions about your duties as a director or would like tailored support, please do not hesitate to reach out to our Governance team. We are here to help.
