When a director misuses their position, acts against the company’s interests, or places their personal interests above those of shareholders, there are legal consequences—and legal remedies. Understanding what the Corporations Act requires of directors is the starting point for any shareholder dispute.
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The Four Core Statutory Duties
Sections 180 to 184 of the Corporations Act 2001 (Cth) impose four core duties on company directors and officers:
The Four Core Statutory Duties
Sections 180 to 184 of the Corporations Act 2001 (Cth) impose four core duties on company directors and officers:
| S180—Care and Diligence | Act with the degree of care, skill, and diligence that a reasonable person in that role would bring. Includes informed decision-making; cannot remain wilfully ignorant of the company’s affairs. |
| S181—Good Faith | Act in good faith in the best interests of the company and for a proper purpose. Cannot act to benefit themselves or third parties at the company’s expense. |
| S182—No Improper Use of Position | Cannot use their position as director to gain an advantage for themselves or anyone else or to cause detriment to the company. |
| S183—No Improper Use of Information | Cannot use information obtained as a director to gain advantage or cause detriment—including after leaving the board. |
Section 184 makes dishonest or reckless conduct under ss181-183 a criminal offense prosecuted by ASIC.
The Business Judgment Rule: A Director’s Shield
Section 180(2) provides a defense for genuine business decisions. A director who makes an informed, good-faith decision they rationally believed was in the company’s interest is not liable even if that decision turns out badly. The business judgment rule protects commercial judgment—not abdication of it. Directors who fail to read board papers, ignore financial information, or rubber-stamp decisions without analysis cannot rely on it.
Common Duty Breaches in Shareholder Disputes
In the context of director/shareholder disputes, common duty breaches include:
- Diverting company opportunities to a director’s personal vehicle or related entity
- Authorizing related party transactions at terms that benefit the director and disadvantage the company
- Using company funds or resources for personal benefit
- Refusing to declare dividends while paying excessive director fees
- Failing to act on material conflicts of interest (using position without disclosure)
- Making decisions designed to dilute a minority shareholder’s position
Shareholder Remedies for Director Duty Breach
Where a director breaches their statutory duties, shareholders have several possible remedies:
| Derivative action (s236) | A shareholder sues the director on the company’s behalf. The company is the plaintiff; any recovery flows to the company. See D04 for the derivative action regime. |
| Oppression remedy (s232) | Where the breach is part of a pattern of conduct that is oppressive, unfairly prejudicial, or unfairly discriminatory against the minority shareholder. See Minority Shareholder Rights (D10). |
| ASIC referral | Serious duty breaches (especially involving fraud or dishonesty) can be reported to ASIC for civil penalty or criminal prosecution. |
| Injunction | An urgent order requiring the director to stop conduct that breaches their duties—or requiring disclosure of conflicts. |
Conflict of Interest Obligations
The duty to avoid conflicts of interest under ss181-182 requires directors to disclose any material personal interest in a matter being considered by the board (s191). Where a director has a material conflict, they must:
- Give written notice of the conflict to the board
- Withdraw from the discussion and vote on the matter in question (unless exempt under s191(2))
Failure to disclose a material conflict is itself a breach—and can expose the director to liability for transactions entered into while the conflict was undisclosed.
Frequently Asked Questions
Q: Can a director of a small private company have a conflict of interest and still vote?
A: In some small proprietary companies with two shareholders who are both directors, the conflict of interest rules can be varied by unanimous agreement or may be modified by the company’s constitution. However, the underlying duties of good faith and acting in the company’s interests still apply.
Q: What is the difference between a statutory duty and a fiduciary duty?
A: Statutory duties under ss180-184 are created by the Corporations Act and carry specific civil and criminal consequences. Fiduciary duties arise from equity—they pre-exist the Corporations Act and are broader. A director owes both. See Fiduciary Duties (D02).
Q: Can a director be sued personally by a shareholder for breach of duty?
A: In most cases, the claim belongs to the company, not the shareholder individually. A shareholder can sue derivatively (on the company’s behalf under s236) or may have a personal claim under s232 if the breach also constitutes oppression. Direct shareholder claims against directors for individual losses are generally not available under the Corporations Act.
Q: What if the company constitution authorizes the conduct?
A: A company constitution can modify some default duties—for example, it may permit a director to vote on a matter in which they have a conflict. However, a constitution cannot authorize conduct that is dishonest, fraudulent, or contrary to s184 (criminal conduct). The constitution works within the statutory framework.
Q: Does the duty of care apply to non-executive directors?
A: Yes. Non-executive directors owe a duty of care under s180, though the content of that duty is calibrated to their role. A non-executive director who takes no steps to monitor the company’s affairs when warning signs are present can still be held to have breached s180.
Q: How quickly can a court act to stop a director breaching their duties?
A: Where urgency requires it—for example, a director is about to complete a transaction that diverts company assets—an injunction can be sought and obtained within days. Boyle Litigation has experience moving urgently in the Supreme Court, where director conduct threatens irreparable harm.
