The responsibilities of becoming a director

The Corporations Act 2001

The obligations of directors are based on the fact that they hold a position of fiduciary responsibility to the company or organisation of which they are a director.

The primary obligations are:

Section 180(1) Corporations Act 2001 (the CA) imposes the obligation of acting with care and diligence1. Subsection 180(2) deems an officer to have satisfied the requirements of S180(1), as well as the corresponding general law duty, where an officer has chosen to take or not take action based on an exercise of their judgment in: good faith and for a proper purpose2, and not for a material personal interest3, Though only in circumstances where: the officer informs themselves about the subject matter of the judgment to the extent he or she reasonably believes to be appropriate, and the officer rationally believes that the judgment is in the best interests of the corporation. Section 181(1) requires officers to exercise powers in good faith for what they believe to be the interests of the Company, and for a proper purpose. Section 182(1)(a) prohibits officers from acting in their position for the purpose of obtaining personal advantage for themselves or for another person4. Section 183 requires directors to refrain from using information obtained in the course of their duties for the advantage of themselves or for another person5. 1.1 Case Law The care and diligence criteria found in Section 180(1) of the Corporations Act 2001 was discussed in ASIC v Vines where it was held that "each person appointed to a designated executive office is subject to objective statutory duties of care, skill and diligence measured by the degree of care, skill and diligence that a reasonable person in an equivalent executive position in the corporation would exercise in the corporation's circumstances6. It will be noted from this statement that the applicable standard is that of a reasonable person who is in the position of the director in the particular circumstances of the organisation. Thus, the standard of care required of a director will vary, though it is to be determined objectively.

It has been said that the standard of care required by the statutory duty is "no higher" than that required by the analogous general law duty7. Indeed, it has been said that the statutory duty is "essentially the same"8 as the general law duty.

Section 180(2) has been described as the "business judgement rule", which prevents a Court from enquiring as to the merits of a business judgement9. The components of Section 180(2) can be understood by reference to their general law meaning. For example, in Chew v R10, it was stated that the duty of good faith requires company directors to:

act honestly (and not misappropriate the company's assets); exercise their powers in the interests of the company (and avoid misusing their powers); and avoid conflicts of interests11 The requirement of Section 182 to act other than for material self interest reflects fundamental fiduciary obligation. It was said of the precursor to that section that the impropriety that is prohibited by it "consists in a breach of the standards of conduct that would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case"12 At its base, the Section confirms the long standing rule that directors cannot use the power conferred upon them to obtain some private advantage13.

1.2 Fiduciary duties and accountability Basis of a director's fiduciary duties and classes to which they may apply As a broad statement of principle, it has been said that a precondition for a person to be a fiduciary is that they 'must first and foremost have bound themselves in some way to protect and or to advance the interests of another'.14 This description is appropriate to describe the responsibilities of directors, namely to protect and advance the interests of the Company or organisation of which they are a director. For a director to seek personal advantage to the...