Hoda Nahlous and Michael Chin argue the need for clarity regarding directors duties and obligations.
Amongst the changing governance landscape with respect to directors’ duties and liabilities, it is important to remember that the general duties of directors are owed to the company for which they are a director.
The Australian Securities Exchange (ASX) consultation process currently underway to update the ASX Corporate Governance Council’s Principles and Recommendations attempts to expand the demographic for whom directors must have regard to in order to preserve their organisation’s “social licence to operate”. For this purpose, the ASX suggests that an entity’s board must consider the views and interests of other stakeholders, such as customers, suppliers, consumers taxpayers and others.
Although well-intended, and aligning with the public desire that continues to build momentum for corporates to operate having a greater sense of social responsibility, this has added to the confusion as to for whom directors owe their key duties.
In performing their role, directors are subject to certain duties and obligations under the Corporations Act 2001 (Act), the common law, and the company’s constitution. In brief, the key duties for directors are to:
Sections 181-183 are civil penalty provisions. Section 184 operates to convert Sections 181 – 183 to criminal offences where dishonesty or recklessness are present.
Importantly, no suggestion was made by the Taskforce into the Australian Securities and Investments Commission (ASIC) enforcement regime that any changes were required with respect to the workings of these provisions (other than with respect to increasing certain penalties).
This is a high-level summary of those key directors’ duties that have been the subject of current discussion. KPMG Law would be pleased to discuss these duties in detail, as well any other current live issues concerning directors.