Director’s Common Law Duties:

Being involved on the board or at a managerial position in a company brings with it certain duties and obligations. One source of these duties and obligations is the common law. Our team of experienced and skilled Commercial and Corporate Law Solicitors may be able to assist you in protecting your rights and advising you appropriately so that you may properly discharge your common law duties as a director. Our team of highly skilled Commercial and Corporate Law Solicitors may be able to assist you in protecting your rights and advising you appropriately so that you may properly discharge your common law duties as a director.

There is an obligation to act honestly which is referred to as a duty of good faith. This is combined duty not to use a position improperly which corresponds to the fiduciary duty to act bona fide in the best interests of the corporation. In addition there is the duty to avoid a conflict of interest which corresponds to the fiduciary duty to exercise a reasonable degree of care and diligence. A director or other officer of a corporation commits an offence if they are reckless; or are intentionally dishonest; and fail to exercise their powers and discharge their duties in good faith in the best interests of the corporation; or for a proper purpose. If the directors delegate a power they are still responsible for the exercise of the power by the delegate as if the power had been exercised by the directors themselves. Consultation with an experienced Commercial and Corporate Lawyer may provide great assistance in understanding common law director’s duties.

The Corporations Act makes it clear that many of the duties of the directors as individual officers are shared by other persons involved in the management of the corporation. Corporate law has evolved in the area of law regarding a director's fiduciary duties by introducing complementary statutory duties and remedies. However, those duties extend to a corporation's: directors; secretaries; executive officers; and external administrators.

The principles of common law relating to directors' duties involve exercising duties with care and diligence. A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a director or officer of a corporation in the corporation's circumstances; and occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.  Directors however, have a right to conduct their business affairs with a level of discretion, freedom from interference and this is referred to as the  business judgment rule.  A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection, and their equivalent duties at common law and in equity, in respect of the judgment if they: make the judgment in good faith for a proper purpose; and do not have a material personal interest in the subject matter of the judgment; and inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and rationally believe that the judgment is in the best interests of the corporation. The director's or officer's belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold. Professional legal advice from a Commercial and Corporate Lawyer may be required to ensure that you are fulfilling your common law duties.

There is also an obligation to act in good faith, as a director or other officer of a corporation must exercise their powers and discharge their duties in good faith in the best interests of the corporation; and for a proper purpose.  This must not improperly use their position to gain an advantage for themselves or someone else. In addition they cannot improperly use information. A person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not improperly use the information to gain an advantage for themselves or someone else; or cause detriment to the corporation. It is important that proper legal advice be obtained to ensure compliance with common law duties from a skilled Commercial and Corporate Lawyer to avoid any penalties or liabilities.

If you need further legal advice on your matter, you may book an appointment with us by telephone on (02) 9233 4048 or by email to info@navado.com.au.

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