You web browser may not be properly supported. To use this site and all its features we recommend using the latest versions of Chrome, Safari or Firefox

We are continuing to serve clients during the COVID-19 pandemic More Info.

Financial Graph

Many businesses employ a company as the vehicle to operate their business. This is usually done to minimise the exposure of the director(s) personally for the debts incurred in running the business and for tax reasons. However, there are circumstances in which directors may not be protected behind this “corporate veil”.

The directors of a company have duties to the company under both:

  1. the common law; and
  2. the Corporations Act 2001 (Cth), sometimes called statutory duties.

A breach of these duties has the potential to render a director liable for the debts of the company.

What are directors’ duties?

Common law duties fall into 2 broad categories:

  1. to act in good faith (sometimes called fiduciary duties); and
  2. to exercise skill and care (requiring a director not to act negligently).

Statutory duties are similar in nature to their common duties. Broadly, a director must:

  1. exercise their power and discharge their duties with care and diligence (s180(1));
  2. exercise their power and discharge their duties in good faith and for a proper purpose (s181).
  3. not improperly use their position (s182); and
  4. not improperly use company information (s183).

Who do directors owe these duties to?

The traditional view is that directors owe these duties to the company. The duties are meant to ensure that directors act in the company’s best interests. They are not to obtain a benefit for themselves or anyone else at the company’s expense.

However, recent decisions by the Courts have expanded the scope of directors’ duties to include a duty to a company’s creditors. In circumstances where a company is:

  1. insolvent;
  2. near insolvency;
  3. of doubtful solvency; or
  4. at real risk of insolvency because the company is financially unstable or in financial difficulties;

the Courts have found that the directors owe a duty to take into account the interests of creditors.

What happens when a director breaches a duty owed to creditors?

If a company is eventually wound up for insolvency, the liquidator may turn to the director(s) personally to pay the debts owed by the company.

Get advice

If you are being pursued by a liquidator or creditor for debts owed by your company or you are just concerned about understanding your obligations, you should seek legal advice immediately to avoid further action against you.

You should also seek legal advice immediately if you have been served with any Court document as strict timelines can apply once Court documents are served. Failure to meet those timelines can result in a judgment against you for the full amount claimed by the plaintiff.

If you are involved in a dispute involving a company, contact us by completing the enquiry form below to speak to one of our experienced lawyers.

The contents of this blog post are considered accurate as at the date of publication. However the applicable laws may be subject to change, thereby affecting the accuracy of the article. The information contained in this blog post is of a general nature only and is not specific to anyone’s personal circumstances. Please seek legal advice before acting on any of the information contained in this post.

Thank you for your feedback.

Related blog posts

Consumer and the Law
Liar loans: how mortgage brokers are putting clients at risk

The term ‘liar loans’ has been coined on the back of the Banking Royal Commission. This is because studies have shown almost 40 per cent of loan applications completed through mortgage brokers contained at least one factually incorrect statement. Whether mortgage brokers are providing lenders with incorrect information, or information that is out-of-date, they are putting themselves – and their clients – at risk. A recent study conducted by the Consumer Credit Legal Centre in New South Wales identified some mortgage brokers were breaking the law when filling out loan applications for their clients. Common examples included brokers suggesting their clients provide a different answer...

Planning desk close up documentresize
Consumer and the Law
How to lodge a complaint with Australian Financial Complaints Authority

The Australian Financial Complaints Authority (AFCA) acts as the middleperson between financial firms and consumers or small businesses, offering free and independent dispute resolution services. It deals with complaints about financial advice, insurance, banking and superannuation products and services. While the time limit to lodge a complaint to AFCA is usually between two and six years, the Australian Government recently created the opportunity for those with complaints up to 10 years old to come forward. This means consumers and small businesses have until 30 June 2020 to lodge complaints dating back to 1 January 2008. To lodge a complaint, you must follow AFCA’s process. It is...

How to lodge a complaint with Australian Financial Complaints Authority
Business Law
Proposed Changes to the Franchising Code of Conduct

Franchising is big business in Australia, with approximately 1,120 franchise systems and 79,000 franchise units operating nationally1. As franchising is a diverse sector with characteristics that are unique from other business models, franchises are governed by a mandatory Franchising Code of Conduct (Franchising Code).2 The Parliamentary Joint Committee on Corporations and Financial Services recently completed an inquiry into the operation and effectiveness of the Franchising Code and has released the Fairness in Franchising Report (Report).3 Some of the key findings and recommendations of the report are discussed below. The Committee recommends that the Australian Government establish an...

Waitress In Black Apron Upload

We're here to help

Start your online claim check now. Or, if you have a question, get in touch with our team.