What penalties apply for breaching director’s duties?
The Corporations Act 2001 sets out a list of duties that directors of Australian Companies are expected to pay attention to, and sets out a number of legal consequences for breaching director’s duties. Amongst other duties, those listed include the duties to act in good faith, to exercise care and diligence, to avoid conflicts of interest and to prevent insolvent trading.
If you are accused of breaching these directors duties, then it is recommended you seek legal advice, as breaching these duties can involve both criminal and civil consequences.
Maximum sentences for offences involving breaching director’s duties
| A director commits an offence under Section 184(1) if they are reckless or dishonest and fail to exercise their powers and discharges their duties in good faith in the best interests of the corporations or for a proper purpose. | 15 years imprisonment |
| A director commits an offence under Section 184(2) if they use their position dishonestly with the intention of, or is reckless to, gaining an advantage for themselves or someone else or causing detriment to the corporation. | 15 years imprisonment |
| As per Section 184(3), a person who obtains information because they are or have been a director, commits an offence if they use the information dishonestly with the intention of, or is reckless to, gaining an advantage for themselves or someone else or causing detriment to the corporation. | 15 years imprisonment |
| A director must under s205G(9) notify the relevant market operator of any notifiable interests. | 2 years imprisonment |
| Directors should under s344(2) take reasonable steps to ensure that a company complies with its obligations in the Corporations Act 2001 in relation to the keeping of financial records and financial reporting. | 15 years imprisonment |
| Directors have a duty under Section 588(G) to ensure that a company does not trade while insolvent or where they suspect that the company is insolvent. | 5 years imprisonment and/or $420,000 fine. |
On the civil side of things, Directors who breach their duties can be held personally liable for any losses suffered by the company or its stakeholders.
Regulators can impose civil penalties on directors who breach their duties such as fines and or disqualifications. These fines can be significant and can also negatively impact a director’s reputation.
It is essential for directors to understand their duties and obligations to the company and take appropriate steps to fulfill them. This includes seeking professional advice and ensuring that appropriate processes and controls are in place to prevent breaches.
If you suspect that you may have breached your director duties in Australia, it is worthwhile to contact a lawyer.
