Here are 4 duties that directors and officers must comply with:
1. Duty of care and diligence
A director or officer must exercise their powers and carry out their duties with care and diligence.
To meet the standard of care and diligence, directors or officers need to make sure that:
- their decisions are made in good faith and for a proper purpose;
- they do not have a material personal interest in what they are deciding;
- they make an informed decision about what they are deciding (to the extent they reasonably believe to be appropriate); and
- they rationally believe that their decision is in the corporation’s best interests, i.e. it is a belief that a reasonable person in their position would hold.
2. Duty of good faith
A director or officer must exercise their powers and carry out their duties in good faith in the best interests of the company and for a proper purpose. In other words, they must carry out their duties sincerely, honestly and genuinely.
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3. Duty not to misuse position
A director or officer of a company must not improperly use their position to gain advantage for themselves or someone else or to cause detriment to the company.
4. Duty not to misuse information
A person who obtains information because they are a director or officer of a company must not improperly use the information to gain advantage for themselves or someone else or to cause detriment to the company. This duty continues after the person stops being a director or officer of the company.
If a director or officer breaches any of their duties, they will be subject to investigation and prosecution by ASIC.
The Employment Law Practical Handbook has recently been updated with a brand new chapter – D3 Directors and Officers. It’s packed full of practical information like this to help you understand the responsibilities and liabilities of directors and officers in your company.
If you’re not yet a subscriber to the handbook, click here for more information about the Employment Law Practical Handbook.
