Director's Duties
A Legal and Lego Perspective
24 July 2015
AUSTRALIA BELGIUM CHINA FRANCE GERMANY HONG KONG SAR INDONESIA (ASSOCIATED OFFICE)
ITALY JAPAN PAPUA NEW GUINEA SAUDI ARABIA SINGAPORE SPAIN SWEDEN
UNITED ARAB EMIRATES UNITED KINGDOM UNITED STATES OF AMERICA
Personal Civil Liability
• Fine up to $200,000
• A compensation award
• An injunction stopping the breach
of duty
• Disqualification from managing
companies for up to 10 years
2
Personal Criminal Liability
• Fine up to $340,000
• Imprisoned for up
to five years
3
Directors' duties – statutory/general law
Care and
diligence
Duty to
prevent
insolvent
trading
Good faith /
best
interests/prop
er purpose
Use of
position
Use of
information
Duty to avoid
conflict of
interest /
conflict of
duty
Duty to exercise
powers and
discharge duties
with degree of
care and
diligence (s180)
Ensure
company is able
to pay all debts
as and when
due and
payable.
(Personal
liability of
directors)
Must not
improperly use
position to gain
advantage for
themselves or
someone else
or cause
detriment to
corporation
(s182)
Must not
improperly use
information to
gain advantage
for themselves
or someone else
or cause
detriment to
corporation
(s183)
Duty to avoid
positions of
conflict of
interest or
conflict of duties
This extends to
the preparation
of the
company's
financial
statements
Duty to exercise
powers and
discharge duties
in good faith in
best interests of
corporation and
for proper
purpose (s181)
(Also criminal
offence)
(Also criminal
offence)
(Also criminal
offence)
Supplemented
by s191 –
requirement to
disclose
"material
personal
interests"
Other duties include duty of confidentiality
4
Duty of care and diligence
5
Duty to prevent insolvent trading
6
Essential role of directors –
financial statements
• Directors must read, understand and
focus upon the contents of financial
statements before approving them in
order to ensure (as far as reasonably
possible) that the information included
in them is accurate.
• This duty cannot be delegated.
Everyone must be
Batman
Centro case (2011)
• Financial statements failed to
disclose that US$2.1 billion of
debt was due in the next 12
months
• Directors signed off on
accounts but did not know
they were wrong
• ASIC sued 8 directors
• Court found:
– Directors should have been
aware of the liabilities
– Directors should have asked
questions
Ignorance is no
excuse
Good faith and proper purpose
Directors must act in good faith in the best interests of the company and for a proper purpose
9
Loyalty: Misuse of information or position
•
Directors/officers/employees must not
misuse information or position to
advantage themselves or someone
else or to harm company
•
Directors/officers must not divert
corporate opportunities to themselves
or other entities in which they are
interested
•
Misuse of corporate information may
also contravene prohibition on insider
trading
No joy riding in the company
car!
…or helicopter
Loyalty: Conflicts of interest
Directors must avoid
situations where there
is a conflict between
company's
interests
and:
- their
personal
interests; or
- their duty to another
person/company
The Smithers
Memorial Trust will
switch to using
nuclear power
it's…. excellent
Common Mistakes on NFP Boards
1. Conflicts aren't managed
2. Deferring to CEO / Chair
3. Relying on experts exclusively
4. Not understanding finances
5. Treating property as own
6. Disengaged directors
7. Not focusing on mission
8. Micro vs strategic focus
9. Not seeking professional advice
10.Assuming your questions are silly
Everything is NOT awesome if…
Because we've
• '
always done it
this way
Jane makes
all the
decisions
about
insurance
My cousin
would make a
great CEO –
no need to
recruit
Numbers?
yuck!
Whatever
you say
The company
forklift made
moving house
a breeze
Vaccinate your board
• Honest & respectful Culture
– Disagreement is good!
• Systems and Policies
– Don’t wing it – get advice!
• Training for your board
– Early and often
• Diversity on the board
–
–
–
–
–
Of
Of
Of
Of
Of
skills
ages
genders
professions
closeness to the issue
14
Actively Manage Risk
How to tell if you are doing a good job?
Do you turn up to
every meeting on
time?
Do you know if you
need more
information before
you can make a
decision?
Do you go to
meetings prepared
to make a decision?
Do you read the
agenda and papers
supplied before the
meeting?
Do you keep all
board information
confidential (eg.
documents in a
safe place; not
sharing
information)?
How to tell if you are doing a good job?
Do you read the
minutes after each
meeting to make sure
they are accurate and
reflect the things aid
and decisions made?
Do you ask the
management questions
about the work they
are doing and the
information they are
giving you?
If the minutes are not
correct, do you discuss
that with the Secretary
and board at the next
meeting to have them
amended?
Do you do some of the
talking and also listen
carefully to the views
of others during
meetings?
Do you understand the
key information about
what the organisation
does and how it is run?
Do you understand the
answers?
Are you happy with the
answers?
Do you have a clear
idea about how you
want the organisation
to grow in the next 2,
5 and 10 years?
Are you happy that
everyone is doing
everything they can to
make the company
successful?
Do you promote the
organisation?
And above all… have fun!
18
This presentation material is intended to provide a summary of the subject
matter covered for training purposes only. It does not purport to be
comprehensive or to render legal advice. No reader should act on the basis of
any matter contained in this presentation without first obtaining specific
professional advice.
AUSTRALIA BELGIUM CHINA FRANCE GERMANY HONG KONG SAR INDONESIA (ASSOCIATED OFFICE)
ITALY JAPAN PAPUA NEW GUINEA SAUDI ARABIA SINGAPORE SPAIN SWEDEN
UNITED ARAB EMIRATES UNITED KINGDOM UNITED STATES OF AMERICA
235784570