Day 193 Director’s duty

Director’s duty

As the actual controller of the company, the directors are obliged with many responsibilities. One of the basic measurements of directors’ compliance with there is the loyalty and good faith. Generally, it can be divided into four different perspective, including: retain discretion, avoid conflicts of interest, act in good faith in the company’s interest and use directors’ power for proper purpose. 

First of all, the director must retain discretion, which means the director must agree not to exercise power given to him/her is inconsistent with acting in best interests of the company. Therefore, director must always act in best interests of company. 

In addition, the director has the duty to act in good faith in the best interest of the company. This requirement is clearly stated in S.181(1)(a) of Corporations Act(2001) (cth). The term good faith means the director must act honestly. Normally, the interest is represented as the shareholders interest. In fact, the director must treat the interest of shareholders as a whole, which needs the director to balance the interest of majority and minority. However, when the company is experiencing financial difficulties, the creditors’ interests are supposed to be considered by the director beyond shareholders''' interest. 

Moreover, the director of a corporation must exercise their powers and discharge their duties for a proper purpose.(S.181(1)(b)). The power of directors are interpreted in the S 198A(s) CA(2001) general management power. When justifying where the action was done with a proper purpose, a specific test is introduced. Where the lawful purpose and actual purpose of the activity were compared. If there is a conflict, the director has breached the duty to act for proper purpose. 

At last, the director must disclose any material personal interest to the board unless exemptions apply.(S.191（1） &（2）). Under S.195, the public company directors are prohibited from participating and voting at boarding meetings that consider matters in which they have a material personal interest, exceptions apply. Furthermore, the improper use of position(s.182) and information(S.183) are also prohibited by the statutory provisions. 

The consequence of breaching the loyalty and good faith duties will commonly face civil penalties enforced by ASIC. For instance, the director may be disqualified from the position or be ordered to compensate company’s loss. ASIC may also seek criminal penalties for serious contraventions of the Corporations Act.