Directors Duties


Directors Duties

Under Part 5 of the Companies Act 2014 the fiduciary duties of Directors have been set out for the first time.  All statutory and common law duties of a Director are now provided for in 53 Sections, divided into 6 chapters.  The codification of the Directors responsibilities will guarantee that legislation becomes more transparent and accessible.

Fiduciary Duties

Under the Act, Company Directors shall;

  • act in good faith, in what the Director considers to be in the best interests of the Company;
  • act honestly and responsibly in relation to the conduct of the affairs of the Company;
  • act in accordance with the Company’s constitution and exercise his or her powers only for the purposes allowed by law
  • not use the Company’s Property, information of opportunities for his or her own or anyone else’s benefit unless; (i) this is expressly permitted by the Company constitution; or (ii) the use has been approved by a resolution of the Company in a General Meeting;
  • not agree to restrict the Director’s Power to exercise an independent judgement unless this is permitted by the Company’s Constitution or entered into the Companies interests;
  • avoid any conflict between the Directors duties to the Company and the Director’s other interests;
  • to exercise care, skill and diligence;
  • to have regard to the interest of the Company’s members.

Other Duties Owed by Directors

Contained in Part 5 of the Act are other certain duties that a Director owes to a company. They can be summarised as follows:

  • Ensure that the Company Secretary has the necessary skills to undertake the role required by the Act.
  • Directors must disclose any interests he or she has in any contracts made by the company.
  • Acknowledge the existence of their duties by signing a declaration to that effect.
  • Directors are to take into account the interests of the members and employees of the company.
  • Ensure the requirements of the Companies Act are complied with.
  • Directors of large companies also need to confirm adherence with law, (all respective laws) and acknowledge their responsibilities in the Directors Compliance Statement.

A Breach of Directors Duty

A breach of a Directors duty will require the Director to account to their Company for any gains made by them and compensate their company for any loss that occurred as a result of a breach of their duties.

A Director will be subject to an objective standard of care, skill and diligence. The test measures what can reasonably be expected of any Director in the particular role, and will allow for a higher standard to be expected of those with greater knowledge and experience. In other words, the more expertise a person has the more that will be expected of them.

The court may grant relief from the liability that resulted from a Directors breach of duty if it is satisfied that the Director has acted honestly and reasonably.

Who does this apply to

Under the legislation Directors’ duties and requirements will apply not just to formally appointed Directors, it will also apply to shadow and defacto Directors. It is the responsibility of the Director and not the Company Secretary to ensure compliance of a Company

Should you wish to discuss your business requirements and how you will be impacted as a result the implementation of the new Companies Act or if you have any queries in general, please contact us today.