Item 1 of 6 · back to the agenda
Directors’ duties, as ASIC sets them out
ASIC says a director’s first duty runs to the company and its shareholders: acting in their best interests while seeing that the company acts lawfully and ethically. The duties behind that responsibility are set out in the Corporations Act 2001, and a company’s constitution can add more.
General information, not legal advice. This page follows ASIC’s own summary. The official place to check is ASIC’s page on the obligations of company officeholders.
1.1
Who the duties belong to
ASIC calls a company’s directors and secretaries its officeholders. Under the Corporations Act, officeholders carry every duty of a company officer, and directors and secretaries carry other, specific duties as well.
The directors are responsible for managing the company’s business. How that plays out depends, ASIC says, on the size and structure of the company and on its constitution, and in most small proprietary companies the directors are hands-on.
A proprietary company does not need a secretary. If it has none, its directors take on the secretary’s responsibilities, which include making sure the company tells ASIC about changes to its officeholders, its register of members and any ultimate holding company. The same person can be both a director and a secretary.
1.2
The standing duty: the company’s best interests
ASIC says the law requires officeholders to put their company’s best interests first. Its page on the obligations of company officeholders turns that into seven standing expectations, summarised here. ASIC says an officeholder should always:
- be honest and take care in everything they do
- know and obey every law that applies to the company, of which the Corporations Act is only one
- make sure the company can pay its debts when they fall due
- understand the company’s operations, finances and business dealings
- make decisions in the company’s best interests
- make sure the company keeps proper records
- know whether the company is in financial difficulty, and act on it.
The same page adds that a director should understand what the company is doing at all times: tracking its activities and performance, speaking with managers and staff, taking an active part in directors’ meetings, and staying informed about its financial position. ASIC also says to get professional advice when it is needed.
1.3
The test at the moment of decision
That list covers every day in the seat. For the moment a decision affecting the company is made, ASIC sets out a sharper test.
ASIC’s test for an officeholder’s decision that affects the company
When making decisions that affect the company, ASIC says you must:
- decide in good faith and for a proper purpose
- have no material personal interest in the decision
- put the company’s interests first, even where they clash with your own
- disclose any material personal interest you hold
- not harm the company, or gain an advantage for yourself or anyone else.
Disclosure is the subject of its own paper: Conflicts of interest sets ASIC’s rule beside those of the ACNC and two state associations regulators.
1.4
Debts, solvency and the yearly resolution
ASIC is direct about money. It says company directors are legally obliged to prevent insolvent trading, that letting a company incur debt while it is insolvent can have serious consequences, and that a director can be liable for certain debts of the company.
Once a year the directors pass a solvency resolution: a statement of whether, in the directors’ opinion, the company will be able to meet its debts as they fall due. ASIC treats it as a type of ordinary resolution and part of the company annual review. Among the ASIC-related obligations it lists for officeholders are paying the relevant ASIC fees and checking and responding to the annual company review statement.
1.5
Records
Officeholders must ensure the company keeps and stores all required records. In general, ASIC says, financial records must correctly track and explain the company’s transactions, financial position and performance, and allow accurate financial statements to be prepared and audited. Companies must keep financial records for at least 7 years, and they may be electronic as long as hard copies can be produced within a reasonable time.
Directors have the right to access the financial books and records at all reasonable times. Officeholders must give copies to auditors on request, even when someone else, such as an accountant, holds them.
1.6
Who cannot take the seat
ASIC sets out three reasons a person cannot be, or can be barred from being, a company officeholder.
| Reason | What ASIC says | How long |
|---|---|---|
| Bankruptcy | Nobody can be an officeholder while bankrupt, or while covered by a personal insolvency agreement under the Bankruptcy Act 1966. | ASIC’s page speaks of being “currently” bankrupt or covered. |
| Some convictions | Including fraud or other dishonesty offences, breaking the obligations of an officeholder, and offences against the interests of a company. | 5 years after conviction or, if imprisoned, 5 years after release. |
| Disqualified by ASIC | Possible where, in the last 7 years, the director was an officer of 2 or more companies that went into liquidation paying creditors less than 50 cents in the dollar, or relied on the Fair Entitlements Guarantee scheme to pay employee entitlements. | Up to 5 years. |
A current officeholder who is convicted of a relevant offence or declared bankrupt is disqualified automatically, and the company must remove them and tell ASIC within 28 days.
1.7
Consent, and what signing means
A company must get, and keep, a person’s written and signed consent before appointing them as a director or secretary. If someone is on the companies register without ever having given that consent, ASIC says the company has not complied with the law, and the person can ask ASIC to check their appointment; with no evidence of consent, ASIC removes their name and details from the register.
Signing is the other half of the story. ASIC says some officeholders give consent without fully understanding the obligations, and that they still have those obligations. A person can resign, but can still be responsible for what they did while appointed.
1.8
Whistleblowers, and penalties
Officeholders also have obligations under the whistleblower laws. ASIC describes the main ones as not disclosing a whistleblower’s identity, or information likely to identify them, unless the law authorises it, and not causing or threatening detriment to a whistleblower for making a disclosure. Its Information Sheet 247 covers them in full.
On penalties, ASIC says they can reach criminal charges, with fines or prison, and can bar a person from some business and company roles later.
A director must also apply for a director identification number before being appointed; that is the next item.