Australia: A comparison of directors' duties in PNG and Australia

Last Updated: 21 December 2016
Article by Peter Taimre and Francois Blanchet (formerly with Holding Redlich)

Most Read Contributor in Australia, November 2018

This article is a comparison of Papua New Guinean and Australian directors' duties to assist the navigation of the differences.

Australia
Directors' Duties The general duties of directors exist under both the general law and the Corporations Act 2001 (Cth) (Corporations Act).
Duty Content Penalties

1. To act with care and diligence

Based on how a reasonable person in the circumstances would act

Civil contravention. A pecuniary penalty of up to $200,000.

2. To act in good faith and in the best interests of the company

Acting in the best interests of the company and only in pursuit of a proper purpose.

Civil contravention and a criminal offence if intentionally dishonest or reckless (2,000 penalty units or imprisonment for 5 years, or both).

3. To not use your position as director improperly

Cannot use your directorship to your own, or another's advantage nor can you use your position in a way that has detrimental effects for the company.

Civil contravention and a criminal offence if intentionally dishonest or reckless (2,000 penalty units or imprisonment for 5 years, or both).

4. Proper use of information

Cannot use information that you have obtained in your role to your advantage and to the detriment of the company. This duty carries on after you cease to be a director.

Civil contravention and a criminal offence if intentionally dishonest or reckless (2,000 penalty units or imprisonment for 5 years, or both).

5. Not to trade while insolvent

Cannot take on a debt that will, or you reasonably suspect, will make you insolvent, or when you are insolvent.

Civil contravention (2,000 penalty units), but if debt dishonestly taken on may be a criminal offence.

The director (or former director) may be liable for the loss suffered by a person in relation to a debt owed by the company.

6. Disclosure

You must notify the directors if you are a director and have a "material personal interest" in something that affects the company.

A criminal offence (10 penalty units or imprisonment for 3 months, or both).

7. Covered in duty 6 above and general law duties.

8. Covered in duty 4 above and general law duties.

9. Covered in duty 1 above and general law duties.

10. Covered in duty 1 above and general law duties.

*a penalty unit is currently $180.

General Law / Underlying Law
High-level conflict of Interest Duties

Directors are in a fiduciary relationship – that is, in a position of highest trust. Directors:

  1. must act in good faith and in the best interests of the company;
  2. must put (or risk putting) their own interests ahead of their company's;
  3. must not act contrary to another duty the director has or compete with the company; and
  4. must not profit from the Director's role in an improper manner or derive secret profits.

Although breaching these general law duties taken alone does not result in a criminal offence, the court can still penalise a director such as by allocating profits made, for example, to the company or shareholders. Note that where a statutory duty also applies the position is different.

Other duties

Directors are also potentially subject to further general law duties applicable in certain circumstances.

Papua New Guinea
Directors' Duties Largely equivalent general duties of directors exist under both the underlying law and the Companies Act 1997 (Companies Act).
Duty Content Penalties

1. To exercise powers or perform duties with care, and diligence, and skill.

Based on how a reasonable person in the circumstances would act.

A fine not exceeding K50,000 or imprisonment for a term not exceeding two years, or both.

2. To act in good faith and in the best interests of the company.

Acting in the best interests of the company and only in pursuit of a proper purpose.

A fine not exceeding K200,000 or imprisonment for a term not exceeding five years, or both.

3. Equivalent duty in underlying law.

4. Not to disclose any information or make use of or act on any information if such information would not be available to you if you were not a director of the company.

A director who has information that would not otherwise be available to him/her, generally, you must not disclose the same to any person, or make use of or act on the information.

A fine not exceeding K200,000 or imprisonment for a term not exceeding five years, or both.

5. To prevent insolvent trading

Cannot take on a debt that will, or you reasonably suspect, will make you insolvent, or when you are insolvent.

A fine not exceeding K10,000.

The director (or former director) may be liable for the loss suffered by a person in relation to a debt owed by the company.

6. Disclosure

A director interested in a transaction or proposed transaction with the company must cause this to be entered in the interests register and notify the other directors.

May be liable to a fine not exceeding K10,000.00.

7. To disclose any acquisition or disposition of a relevant interest in shares issued by the company

A director who acquires or disposes of a relevant interest in shares issued by the company shall notify the board in the way provided for in this section.

A fine not exceeding K10,000.00.

8. Not to engage in insider dealing

A director in possession of information material to the value of securities of the company or a related company cannot acquire or dispose of the same unless the consideration is the fair value.

A fine not exceeding K200,000.00 or imprisonment for a term not exceeding five years, or both.

9. To supervise the share register

-

A fine not exceeding K10,000.00.

10. To comply with the Companies Act 1997 and the company's constitution

A director shall not act, or agree to the company acting, in a manner that contravenes the Act or its constitution.

A fine not exceeding K10,000.00.

General Law / Underlying Law
High-level conflict of Interest Duties

As in Australia, directors are in a fiduciary relationship.

Directors are in a fiduciary relationship – that is, in a position of highest trust. Directors:

  1. must act in good faith and in the best interests of the company;
  2. must put (or risk putting) their own interests ahead of their company's;
  3. must not act contrary to another duty the director has or compete with the company; and
  4. must not profit from the Director's role in an improper manner or derive secret profits.

Although breaching these underlying law duties taken alone does not result in a criminal offence, the court can still penalise a director such as by allocating profits made. Note that where a statutory duty also applies the position is different.

Other duties

Directors are also potentially subject to further underlying law duties applicable in certain circumstances.

This note has been prepared for general information purposes only, and is not a comprehensive list of all duties. There are also additional results of breach (such as equitable remedies) in some cases as well as additional duties that can arise. Generally, these duties can apply to de facto, nominee and shadow directors. If you require legal advice, please contact Peter Taimre, Special Counsel, to discuss.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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