Overview – Director’s Duties under the Corporations Act 2001 (Cth)
Any person who is a director of a corporation or is intending to be a director of a corporation, ought to be aware, or remind themselves, of their duties under the provisions of the Corporations Act 2001 (Cth) (the “Corporations Act”).
If you are shareholder in, or otherwise dealing with a corporation, it is also likely in your interests to understand the duties of the director of that corporation, and more importantly, the options available to you when that director may be in contravention of those duties.
While this article is not intended to be an exhaustive list of all duties and obligations owed by a director of a corporation, it may be used as a quick reference guide in determining the appropriateness of the conduct of a director through the various decisions they make in respect of the day-to-day operations of the business the corporation conducts.
Who is a director
Section 9AC of the Corporations Act provides that a director of corporation is someone appointed and listed on the register maintained by the Australian Securities and Investments Commission, or a “de – facto” or “shadow” director.
A person who can be found to be a “de – facto” or “shadow” director is a person who the directors of the corporation or body are accustomed to act in accordance with the person’s instructions or wishes, and also someone who performs functions that would properly be expected to be performed by a director. The person does not need to be “in ultimate control” of the company and the person may still be subject to the direction and control of the board.
You could be a director of a corporation for the purposes of the Corporations Act and be obliged to comply with the various obligations of being a director, without even knowing it.
Section 180 of the Corporations Act – Care and diligence
Section 180 of the Corporations Act provides that a director must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise.
The test under section 180 of the Corporations Act is an objective test, and the question is what an ordinary person with the knowledge and experience of a director might have been expected to have done. The test recognises that a director may need to undertake a risk to benefit analysis. In doing so, a court will consider the balance between the reasonably foreseeable risk of harm against the potential benefits which could reasonably have been expected from proceeding with the course of action.
There is the possibility that if the corporation breaches its statutory obligations, including those under the Corporations Act, this can be found to be in contravention of section 180 of the Corporations Act by the director.
The subjective and personal characteristics of the director in question (such as qualifications, skills and involvement) are largely irrelevant. The duty can extend to becoming aware of the operations and business of the corporation, the corporation’s financial affairs (including having financial literacy to understand financial statements) and potentially other matters. The duty is not discharged by giving attention on a periodical basis.
A key and critical point to keep in mind is that a director is unable to simply say that they were not involved in the day to day or managerial operations of the corporation to avoid liability.
Section 181 of the Corporations Act – Good Faith
Pursuant to section 181 (1) of the Corporations Act, a director must discharge their duties in good faith in the best interests of the corporation, and for a proper purpose. To act in good faith in the best interests of the corporation it could be said that a director must act for the benefit of the corporation and avoid acting with disregard for the corporation’s interest.
For example, a director should not divert opportunities of the corporation, should not cause loans to be advanced for no benefit and should not cause the use of tangible and intangible assets owned by the corporation for no benefit. This is particularly so in circumstances where those benefits are provided to the director or parties related to the director.
The duty to act in good faith can extend to others’ interests, such as those of members (current and future), creditors of the corporation (particularly when facing insolvency), beneficiaries of a trust (if the corporation acts in the capacity as a corporate trustee) and employees, contractors and the community generally.
To act for proper purposes means to avoid acting improperly. To act improperly, it must be shown that the substantial purpose was improper and in breach of the director’s duties. A director should endeavour to ensure that any decision is linked to a financial or business objective, and if necessary, obtain a professional’s opinions.
Section 182 of the Corporations Act – Use of position, and Section 183 of the Corporations Act – Use of information
Pursuant to section 182 (1) of the Corporations Act, a director (and other persons) must not improperly use their position to gain an advantage for them or someone else, or cause detriment to the corporation.
This duty of a director ceases upon their resignation, although other duties may remain live, such as to avoid the improper use of confidential information, and the duty further discussed below.
Pursuant to section 183 (1) of the Corporations Act, a director (and other persons) must not improperly use information to gain an advantage for them or someone else, or cause detriment to the corporation.
This duty continues, even following the resignation by a director.
Other Corporations Act provisions
The duties referred to above are the duties of a director that are the more well-known duties provided for in the Corporations Act. However, there are further provisions that are regularly overlooked which, if unknown, may have serious adverse personal consequences for a director.
Through various provisions detailed in section 184 of the Corporations Act, it can be a criminal offence to breach the duty to act in good faith (section 181), use a position improperly (section 182) or use information of the corporation improperly (section 183).
Generally, there needs to be shown some recklessness and intent in the conduct of the director for criminal liability to arise, and while criminal liability under section 184 of the Corporations Act rarely arises, this is still a real and serious risk
Section 187 of the Corporations Act imposes obligations on directors of corporations in a corporate group, in that you may potentially owe duties to another corporation within a corporation’s corporate group.
Section 188 (2) of the Corporations Act imposes obligations on a director for secretarial contraventions if there is no secretary appointed. This means that even if a secretary resigns and there is no secretary registered on the register maintained by the Australian Securities and Investments Commission, a director can be liable for breaches of secretarial duties.
Section 190 of the Corporations Act imposes obligations on a director for delegating powers for the purposes of s 198D of the Corporations Act (which allows directors to delegate their duties). This could mean that a director could be liable for a person’s conduct by “delegating” their powers to them, such as a committee of directors, another director, an employee or any other person.
Chapter 2M of the Corporations Act provides various financial and sustainability record keeping and reporting obligations, and:
- Section 285 of the Corporations Act provides an overview of the financial reporting requirements, which are extensive.
- Section 286 of the Corporations Act outlines the minimum standard of financial reporting and record keeping, which again, are quite onerous. Generally, the obligation is to keep financial accounts and records, such as a balance sheet, profit and loss and cash flow statement/analysis, however the extent of the obligation will depend on the specific circumstances of every corporation.
- Section 285 and 286A of the Corporations Act provides similar obligations referred to immediately above, but as they relate to sustainability reporting. These obligations generally apply to large corporations, although in our experience, many directors of corporations of all sizes are unaware that these obligations even exist.
Section 344 of the Corporations Act makes breaches of the above provisions a civil penalty for the purposes of s 1317E of the Corporations Act. As further discussed below, this can make a director personally liable for various breaches of the Corporations Act discussed in this article.
While you can read other articles on our firm’s website for more detailed discussion on the duties of a director when a corporation is, or is at risk of becoming, insolvent, a director should also be aware that:
- Pursuant to section 588G of the Corporations Act, a director has a duty to prevent a corporation from trading while insolvent. If not, debts accrued while the corporation was trading insolvent can become personal liabilities of the director.
- A failure to maintain books and records (including as provided for in chapter 2M of the Corporations Act) can result in a presumption of insolvency arising.
- A director could also become personally liable for the corporation’s PAYG, GST and superannuation obligations if reporting is not completed on time, or a director penalty notice is issued and then the liabilities are remitted to a director personally after a 21 day statutory timeframe passes.
Personal monetary claims against a director
Even if a director of a corporation breaches any of the duties owed pursuant to the Corporations Act, there will need to be a determination of whether, and to what extent, that director needs to compensate the corporation or other persons.
Generally, a claim for a contravention of the Corporations Act can be made by the Australian Securities and Investments Commission or the corporation. A claim by a corporation can be made through the decision of other directors of a corporation, or by a person with sufficient interest bringing a derivative action in which the court authorises that person to cause the corporation to sue the director.
Contraventions of section 180, 181, 182, 183 and Chapter 2M (by section 344) of the Corporations Act are not automatically an offence. A declaration for a contravention could be made pursuant to s 1317E (1) of the Corporations Act.
Following a declaration, a pecuniary penalty could be ordered pursuant to section 1317G (1) of the Corporations Act. At the time of publishing this article, the maximum pecuniary penalty which may be ordered against a director is the greater of:
- 5,000.00 penalty units, which for an offence which occurred after 7 November 2024 is calculated to be $1,650,000.00; or
- if the Court can determine the benefit derived and detriment avoided because of the contravention, that amount multiplied by 3. So, if the director obtained a benefit of $2,000,000.00, the penalty ordered could be as much as $6,000,000.00.
Another order which could be made is a relinquishment order pursuant to section 1317GAB of the Corporations Act, requiring payment of an amount equal to the benefit derived or detriment avoided because of the contravention by a director. The Court has the power to make an order for a pecuniary penalty up to 5,000.00 penalty units, and in addition, a relinquishment order.
In serious cases, a director can be disqualified from acting as a director of any other corporation pursuant to section 206C of the Corporations Act.
Except for contraventions of Chapter 2M of the Corporations Act, pursuant to section 1317E of the Corporations Act, a compensation order can be made on an application by the corporation pursuant to section 1317H(1) of Corporations Act, or the Australian Securities and Investments Commission pursuant to s 1317J (1) of the Corporations Act. There are also further compensation provisions pertaining to financial and other specific services provided by sections 1317HA, 1317HB and 1317HC of the Corporations Act.
In summary, an order pursuant to section 1317H of the Corporations Act means that a director could be made personally liable to compensate the corporation for the damage suffered due to a contravention, and in determining the amount of the damages payable, the court can take into account the profits made by the director resulting from the contravention.
Steps directors can take to limit personal liability
As a starting point, and while it may go without saying, a director should act in accordance with their duties mentioned above and take appropriate advice as and when necessary.
What if, as is regularly the case, there are allegations made that there has been a contravention of section 180(1) of the Corporations Act, the duty of the director to exercise their powers and discharge their duties with the degree of care and diligence. Sections 180(2) and (3) of the Corporations Act provide a statutory formulation of the “business judgment rule”. To meet this test (which is a difficult one), the onus of the director is to prove that they:
- made the judgment in good faith and for a proper purpose;
- did not have a material personal interest in the subject matter;
- informed themselves about the subject matter to the extent appropriate; and
- rationally believed that the judgment is in the corporation’s best interests.
Another option available to a director is to seek to rely on the statutory defence provided for in section 189 of the Corporations Act, which is relying on information provided by others such as directors, professional advisors and other directors. The reliance must be made in good faith and having made a reasonable and independent assessment of information or advice. Generally, this defence will be available in limited circumstances.
If all else fails, a director can seek to rely upon section 1318 of the Corporations Act. This provision allows the court to excuse the contravention if the person acted honestly, and having regard to all the circumstances of the case, including those connected with the person’s appointment, the person ought fairly to be excused for the negligence, default or breach. There is also a similar power to the above provided for in section 1317S of the Corporations Act, limited to a contravention of civil penalty provision.
But what if a director has been shut out of the management of the corporation, and that limits their ability to comply with their duties, or obtain information to obtain advice and defend any claims made against them? Prior to taking the step of resigning as a director, they may wish to consider exercising rights they may have as a director to obtain information which may assist them.
A director could exercise their powers to obtain books of the corporation, pursuant to section 198F of the Corporations Act. This power can be exercised by a director if legal proceedings are underfoot or contemplated by the director or another person.
A director could also exercise their powers to obtain financial records of the corporation pursuant to section 290 of the Corporations Act. This right only exists while a director remains in office but is a general right to have access at all reasonable times.
If all else fails, provided that there is another director of a corporation, and subject to obtaining appropriate legal advice, to mitigate any further liability arising, a director may be left with little choice but to resign as a director of the corporation.
Further information
Marino Law recommends that a prudent director should, on a regular basis, obtain a detailed advice regarding their obligations under the Corporations Act from a solicitor based on the director’s individual circumstances.
Marino Law has extensive experience acting for directors of corporations, and also persons such as shareholders seeking to keep directors of corporations accountable for their actions.
Nicholas Rossi – October 2025
The author of this article, Nicholas Rossi, is a solicitor in Marino Law’s commercial litigation and dispute resolution team. Nicholas adopts a solution-focused strategic approach across commercial litigation, insolvency, and deceased estate disputes, grounded in deep technical expertise and commercial acumen. Nicholas has extensive experience in corporations and litigation matters and was a finalist in the 2025 Australian Law Awards (Senior Associate) and two categories of the 2025 Lawyers Weekly 30 Under 30 Law Awards (Insolvency) and (Wills and Estates).
