The recent high profile decision involving the directors and
senior management of James Hardie has put the spotlight on
potential personal liability for individuals in relation to the
actions of the companies they represent. Although the case involved
a large publicly-listed company and centred around the contents of
statements made to the ASX, the potential application to businesses
generally should not be ignored.
Under the Corporations Act 2001 (Act) there are
a number of obligations placed on "directors" and
"officers" of a company. These definitions extend well
beyond individuals that are formally appointed as directors to
that act in the position of a director without being validly
who make, or participate in making, decisions that affect the
whole, or a substantial part, of the business of the
who have the capacity to affect significantly the
corporation's financial standing; or
in accordance with whose instructions or wishes the directors
of the corporation are accustomed to act (excluding external
These definitions potentially cover a range of individuals
involved in franchise businesses, including chief executive
officers; chief financial officers; general counsel; advisory board
members; and senior executives.
There are a range of duties imposed on directors and officers
under the Act and common law, including the duties:
to use reasonable care and diligence;
to act in good faith in the best interests of the company;
to act for a proper purpose;
to avoid any actual or potential conflict of interest;
to not improperly use their position to gain an advantage for
to prevent insolvent trading by the company.
To minimise the risk of a breach of directors duties it is
important that all directors and senior management understand the
obligations imposed on them by law. In addition to general
compliance training, specific training should be provided to all
directors and senior management specifically in relation to their
duties as directors and officers.
It is also important to review directors and officers insurance
policies to ensure that they cover all the individuals they are
intended to cover and that they properly protect against the risks
that they are intended to protect against.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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