Anyone involved in the affairs of a company may be considered a director even if they are not appointed. [Corporations Act 2001 (Cth) s 9 — definition of "director")]. It is usual for a prospective director to sign a consent form.

To be a director a person must be:

Certain criminal offences involving dishonesty also disqualify a person from holding office in a company for a period of 5 years.

A company must have at least one director. If a director is automatically disqualified for any reason or dies, the company no longer has anyone to manage its affairs. In the case of disqualification, a personal representative such as the trustee in bankruptcy may appoint an alternate director. In the case of the death of the sole director, the executor may appoint a new director [Corporations Act 2001 (Cth) s 201F].

A director may be liable for insolvent trading if the company incurs a debt whilst it is insolvent, and there were reasonable grounds for suspecting that the company was insolvent at the time.

The Corporations Act 2001 (Cth) was amended in early 2020 to provide a safe harbour for directors in relation to insolvent trading during the pandemic. It meant that a director may have avoided personal liability for insolvent trading if certain criteria were met.

The debt must have been:

From 1 January 2021, this protection is only available to eligible companies under measures known as temporary restructuring relief. The regime is complex and requires specialist accounting or legal advice. For more information, please visit Australian Securities and Investments Commission website for further information [link opens in a new window].

The minimum amount for a statutory demand under section 459E of the Corporations Act 2001 (Cth) was increased during the pandemic to $20,000, and the time for responding increased to 6 months. On 1 January 2021, this measure ceased and the minimum amount reverted to $2,000 with 21 days in which to respond.

On 1 July 2021, the minimum amount for a statutory demand was permanently increased to $4 000.

The general duties of directors and company officeholders are set out in Chapter 2D of the Corporations Act 2001 (Cth).

Section 180 sets out the general rule that a company officeholder must exercise their powers and discharge their duties with care and diligence.

This duty is subject to a business judgment rule that requires a director making a business judgment to:

Sections 181 to 183 further set out the duties of a director and other company officers. They must act in good faith in the best interests of the company and for a proper purpose. They are prohibited from using their position to gain an advantage for themselves or someone else, or to cause detriment to the company. They cannot use information obtained in their role within the company to gain an advantage for themselves or someone else.

The above provisions are civil obligations and may also attract civil penalties. If a court declares that a company officeholder has breached their duties, it can impose a financial or pecuniary penalty. The court may also order that the director compensate the company.

The court may also disqualify the person from managing corporations for a period of time [s 206C].

The Australian Securities and Investments Commission (ASIC) is the regulator responsible for bringing court action against company officers who breach these provisions.

Section 184 of the Corporations Act 2001 (Cth) makes it a criminal offence for a director or other officer to act recklessly or is intentionally dishonest in their failure to exercise their powers and discharge their duties in good faith and in the best interests of the company or for a proper purpose.

It is also a criminal offence where a person recklessly or intentionally dishonestly misuses their position or information they have gained through their position with the company.

A person who allows a company to trade whilst insolvent contravenes section 588G of the Corporations Act 2001 (Cth). The section also imposes criminal liability for insolvent trading.

Breaches of the general duty to allow a company to sue the director for damages suffered. This general duty includes the following specific duties.

Directors are under a duty to exercise discretion. This means they must use their independent, informed judgment in managing a company.

They are also under a duty, and have a right, to deliberate. This means directors must make a positive effort to be involved in, discuss, consider and use their discretion in acting on company matters.

Directors are under a duty to exercise power for proper purposes. A power that is exercised for a wrongful purpose is invalid. An example of acting with an improper purpose may be issuing new shares or restructuring the company to increase a director's power. A court can declare these actions as invalid and set them aside.

Directors are under a duty to avoid conflict of interest. A director usually cannot use an opportunity that arises in the course of business to gain a personal profit at the expense of the company.

A director cannot compete with the company, use the company's property for personal purposes or enter into contracts for the supply goods or services for the company unless making full disclosure to the company.

A director must also avoid any appearance, or mere potential, for a conflict of interest. Should a conflict arise, a director must disclose the interest to the company. A director who does not declare a personal interest in an issue affecting the company commits an offence. If an interest is declared, the other directors may ask that person not to vote on the issue.

Directors have particular responsibilities in certain situations.

Whilst the company and its business is trading the company must keep written financial records, so that a director can understand the company’s financial position at all times. Small proprietary companies are not required to prepare financial reports unless directed to by ASIC or otherwise required under the Corporations Act 2001 (Cth).

The company must lodge an annual statement which includes a resolution passed by the directors regarding the solvency of the company.

If the company is insolvent, or an external administrator is appointed, a director also has the following responsibilities:

Commonwealth civil pecuniary penalties for breaches can be up to $1.1 million, or three times the benefit obtained or avoided for the individual.

Maximum prison terms are up to 15 years for breaches of directors' duties, false or misleading disclosure, and dishonest conduct.

The Corporations Act 2001 (Cth) requires that a company registered in Australia must have at least one director. Please visit the Law Handbook Company Directors section for more information about the appointment of directors, their duties and functions.

The Australian Securities and Investments Commission (ASIC) maintains a register of companies. The register includes information about companies including director information. This information is accessible by the public including date of birth and address.

Part 9.1A of the Corporations Act requires all Australian directors to have a unique identification number, called a Director’s Identification Number ('DIN'). Directors include those of registered foreign companies, and Aboriginal and Torres Strait Islander Corporations registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) (CATSI Act).

The regime is being introduced gradually. Up to 28 April 2022, newly appointed directors will need to apply within 28 days of appointment. After 28 April 2022, a director will need to apply before their appointment.

By 30 November 2022, all current directors must get a DIN. All information about companies including linking the DIN to company records will occur in 2023.

A director may only have one DIN. This ensures that each director’s information is accurate and traceable by regulators. Currently, many records may exist for one person. Separate records include different information for the same person. This may result in confusion and avoidance of regulators.

The DIN regime aims to deter directors from phoenixing companies to avoid creditors. Phoenixing is the practice of removing assets from a failing company and transferring them to a new entity for little or no value. The new entity carries on the business while the failed company is put into external administration. If done for an improper purpose, this conduct may attract fines and penalties under the Corporations Act 2001 (Cth).

Even if a person ceases to be a director, changes their name, or moves overseas, the DIN remains linked to that person.