Company Compliance
6. Duties of Officeholders
Authors: Staff Legal Eagle
Firm / Chambers:
Last updated: 06 Jul 2015
- The statutory duties of directors and officers are found in the Corporations Act 2001 (Cth) and include:
- the duty to exercise your powers and duties with the care and diligence of a reasonable person which includes taking steps to ensure you are properly informed about the financial position of the company and ensuring the company doesn’t trade if it is insolvent;
- the duty to exercise your powers and duties in good faith in the best interests of the company and for a proper purpose;
- the duty not to improperly use your position to gain an advantage for yourself or someone else or to cause detriment to the company; and
- the duty not to improperly use information obtained through your position to gain an advantage for yourself or someone else or to cause detriment to your company.
- These duties do not only apply to paid directors. They also apply to executive and non-executive directors, paid and unpaid, full-time, part-time, casual, voluntary and alternate directors.
- Sometimes these duties will also extend to officers of a company such as the company secretary. The term 'officer' is defined very broadly under the Corporations Act 2001 (Cth).
- An officer is generally considered to be a person:
- who makes decisions that affect the whole or a substantial part of the business;
- has the capacity to affect significantly the corporation’s financial understanding; or
- in accordance with whose instructions or wishes the directors are accustomed to act. Note that this does not mean advice given by a person in the proper performance of functions attaching to the person’s professional capacity or their business relationship with the director such as a lawyer or financial advisor.
- There is currently no case law that fully defines the word ‘officer’ although the Corporations Act 2001 (Cth) does provide us with some principles. These are as follows:
- the person undertakes activities which involve policy and decision-making affecting the whole or a substantial part of the corporation or which have a significant bearing on the financial standing of the corporation;
- the person does not have to be on the board or an executive in communication with the board for large companies;
- the frequency with which the person carries out managerial functions is relevant and day-to-day or routine functions are not counted;
- the person's participation in decision-making must be more than an administrative arrangement; and
- the seniority of the person within the company is relevant as is the ability to take part in decisions that affect the company's business at a high level.
- If you become the director of a company you must ensure that ASIC has been informed of the name, date of birth and current residential address of all other directors including yourself. Usually a company secretary will have done this on your behalf. You should check that this has been done.
View more Information on Business & Company