In short
A director owes four general duties under sections 180 to 183 of the Corporations Act 2001 (Cth): care and diligence, good faith for a proper purpose, no improper use of position, and no improper use of information. Recurring obligations are a resident director, notice to ASIC within 28 days of an appointment, financial records kept for seven years, and a solvency resolution within two months of each review date.
- Sections 182 and 183 bind employees as well as directors, and section 183 continues to apply after a person leaves.
- The business judgment rule protects the process, not the outcome, and only against the section 180 duty.
- Safe harbour puts the evidential burden on the director, which makes it a documentation regime.
- A proprietary company must have at least one director who ordinarily resides in Australia.
Four duties, and they are shorter than you expect
The general duties of a director sit in four consecutive sections of the Corporations Act 2001 (Cth), and between them they run to about a page. Most of the difficulty is not in reading them. It is that they are written as standards rather than rules, so knowing them does not by itself tell you whether a particular decision was compliant.
| Section | The duty | Who it binds |
|---|---|---|
| 180(1) | Care and diligence | Directors and other officers |
| 181(1) | Good faith in the best interests of the corporation, and for a proper purpose | Directors and other officers |
| 182(1) | Not to improperly use your position | Directors, secretaries, other officers and employees |
| 183(1) | Not to improperly use information obtained through the role | Anyone who obtained it as an officer or employee, including after they leave |
Two things in that table are worth stopping on, because they are the parts people get wrong.
Sections 182 and 183 reach employees, not just directors. They are not confined to the board. A senior employee who uses their position or the company's information for personal advantage is in breach of the same provisions as a director would be.
Section 183 keeps running after you leave. The note to the subsection says so expressly: the duty continues after the person stops being an officer or employee. A departing executive who takes what they learned into a competing venture is not outside the Act because they resigned.
Sections 181, 182 and 183 also catch anyone involved in a contravention, so an adviser or a fellow director who participates is exposed on the same footing.
Section 180 is measured against your actual office, not a general standard
The care and diligence standard is objective, but it is calibrated to your company and your role. Section 180(1) asks what degree of care and diligence a reasonable person would exercise if that person were a director or officer of a corporation in the corporation's circumstances, and occupied the office held by, and had the same responsibilities within the corporation as, the director in question.
That construction does two things at once. It stops a director arguing that they personally did not know any better, because the standard is what a reasonable person would have done. And it stops the standard being uniform, because the reasonable person is placed in your company and given your job. A finance director is measured against the responsibilities of a finance director. A director of a company in distress is measured in the circumstances of a company in distress.
The practical consequence is that dividing responsibilities on a board raises the standard for the person who takes each one, rather than lowering it for everyone.
The business judgment rule, and the four things it asks
Section 180(2) protects a decision that turned out badly, provided the process behind it was sound. A director who makes a business judgment is taken to have met section 180(1), and their equivalent duties at common law and in equity, in respect of that judgment, if four conditions are all satisfied.
The four conditions in section 180(2)
- The judgment is made in good faith for a proper purpose.
- The director has no material personal interest in the subject matter of the judgment.
- The director informs themselves about the subject matter to the extent they reasonably believe to be appropriate.
- The director rationally believes the judgment is in the best interests of the corporation.
The fourth condition is deliberately generous, and the Act says how generous. The director's belief is a rational one unless it is one that no reasonable person in their position would hold. That is a long way below asking whether the belief was correct, or even reasonable. The rule is not protecting good decisions; it is protecting decisions honestly and properly made.
A "business judgment" is defined broadly in section 180(3) as any decision to take or not take action in respect of a matter relevant to the business operations of the corporation. A deliberate decision not to act is covered. A failure to turn one's mind to the question at all is not a judgment and has nothing to protect.
What this means for you
The condition you can actually control is the third one, and it is the one that leaves a trace. Informing yourself to the extent you reasonably believe appropriate means asking for the analysis, reading it, and recording that you did. A board paper, a minute that records what was considered, and an email asking the question you did not know the answer to are all worth more after the event than any recollection of having thought about it.
Note the limit in the section's own note: subsection (2) operates only in relation to the duties under section 180 and their common law and equitable equivalents. It does not protect against a contravention of any other provision of the Act. It is not a shield against insolvent trading or against a breach of section 181.
When a breach becomes a criminal offence
The line is recklessness or dishonesty. Sections 181 to 183 are civil provisions. Section 184 makes the same conduct an offence where the director or officer is reckless or dishonest and fails to act in good faith in the best interests of the corporation or for a proper purpose, and does the equivalent for improper use of position and improper use of information.
So the same act can sit on either side of the line depending on the director's state of mind. A poorly judged related party transaction entered into openly is a different matter from the same transaction concealed. In practice, what moves a matter from one to the other is very often what was disclosed and what was recorded, not what was done.
Conflicts: the notice obligation is on you, and it is strict
A director with a material personal interest in a matter relating to the company's affairs must tell the other directors. That is section 191(1), and section 191(1A) applies strict liability to the circumstance of having the interest. The obligation is not triggered by anyone asking.
Section 191(2) carves out a number of situations, including an interest that arises because the director is a member of the company and holds it in common with the other members, and an interest in the director's own remuneration as a director. Those exceptions are narrower than they sound, and a director who is also a shareholder should not assume a transaction with their own related entity falls inside them.
The single-director proprietary company is the common practical case. Where there are no other directors to notify, the notice obligation does little work, but the general duties in sections 181 and 182 continue to apply in full and are where a conflicted transaction is actually tested.
Insolvent trading is where the company's problem becomes yours
This is the exposure that reaches a director's own money, and it is the reason directors of companies under pressure need advice earlier than they usually get it. Section 588G applies where three things coincide: a person is a director at the time the company incurs a debt; the company is insolvent at that time, or becomes insolvent by incurring that debt; and at that time there are reasonable grounds for suspecting insolvency.
Note what the test is not. It is not whether the director knew the company was insolvent, and it is not whether the company later failed. It is whether there were reasonable grounds for suspicion at the moment the debt was incurred. Section 588G(1A) contains a table fixing when a debt is incurred for a range of company actions, including paying a dividend, so the timing is not always intuitive.
We have set out how this looks from the creditor's side, and what a liquidator can recover, in a companion article: when a customer stops paying, and the order of remedies in Australia.
Safe harbour, and the evidential burden it puts on you
Section 588GA takes the insolvent trading liability away, but only for a director who was actually doing something about it. The protection applies where, at a particular time after the person starts to suspect the company may become or be insolvent, they start developing one or more courses of action reasonably likely to lead to a better outcome for the company, and the debt is incurred in connection with such a course of action, or in the ordinary course of the company's business.
It runs from that point until the earliest of four things:
- the end of a reasonable period, if the director fails to take any such course of action;
- when the director ceases to take any such course of action;
- when the course of action ceases to be reasonably likely to lead to a better outcome; or
- the appointment of an administrator or a liquidator.
The note to the subsection records that the person bears an evidential burden. That single sentence is the practical heart of safe harbour. A director relying on it has to be able to show what course of action was being developed, when it started, and why it was reasonably likely to lead to a better outcome, in a proceeding brought after the company has failed and after memories have moved on.
What this means for you
Safe harbour is a documentation regime disguised as a defence. A director who suspects the company may be in trouble should be creating the record while the decisions are being made: what the plan is, what advice was taken, what the alternatives were and why this one looked better. A reconstruction written after the administrator arrives is worth very little, and it is obvious what it is.
The compliance calendar: what actually falls due
The recurring obligations are fewer than most directors think, and two of them are strict liability offences. For an ordinary proprietary company the list is short.
| Obligation | When | Section |
|---|---|---|
| At least one director ordinarily resident in Australia | Continuously | 201A(1) |
| Notify ASIC of a new director or secretary | Within 28 days of appointment | 205B(1) |
| Keep financial records that would allow true and fair statements to be prepared and audited | Continuously | 286(1) |
| Retain those records | 7 years after the transactions are completed | 286(2) |
| Pass a solvency resolution | Within 2 months after each review date | 347A(1) |
| Prepare a financial report and directors' report | Each financial year, if the company is large | 292(1) |
The review date is normally the anniversary of the company's registration, under section 345A. The solvency resolution obligation in section 347A is a strict liability offence, and it does not apply only where the company lodged a financial report with ASIC under Chapter 2M in the twelve months before the review date. For most private companies no such report is lodged, so the resolution is required every year and is routinely missed.
Whether the company is "large" is decided by section 45A(2). A proprietary company is small for a financial year if it satisfies at least two of three tests:
| Test | Threshold |
|---|---|
| Consolidated revenue for the financial year | Under $25 million |
| Consolidated gross assets at year end | Under $12.5 million |
| Employees at year end | Fewer than 50 |
Each of those figures is consolidated across the company and the entities it controls, which catches groups that would pass on the parent alone. Each is also subject to a different amount being prescribed by regulation, so the thresholds should be checked rather than remembered.
The resident director requirement, and why it comes up constantly
A proprietary company must have at least one director, and that director must ordinarily reside in Australia. Section 201A(1) says so in two sentences, and for a foreign group setting up an Australian subsidiary it is usually the first real obstacle, because it cannot be satisfied by appointing someone who visits.
The Act does not define "ordinarily resides" for this purpose, and the question is one of fact. What it plainly does not accommodate is a board composed entirely of directors based overseas, which is the ordinary starting assumption of a German or Singaporean parent structuring its Australian entity.
The practical answers are a genuine local appointment, a nominee arrangement with a properly documented deed setting out indemnities and the limits of the role, or deferring incorporation until the local hire is made. Each has consequences for who carries the duties set out above, and those duties attach to the office rather than to the level of involvement. A resident director appointed for compliance purposes owes the whole of sections 180 to 184 and section 588G, which is a point worth making to a parent company before the appointment rather than after.
Where this article stops
Not covered here
- Director penalty notices for unpaid tax. Unpaid PAYG withholding, GST and superannuation carry a separate personal liability for directors under the taxation legislation, on its own timetable and with its own defences. It is a real and substantial exposure and it is not set out here, because none of those provisions was read for this article. Treat it as a separate question and take advice on it specifically.
- Public company obligations. Annual general meetings, the additional reporting requirements and the rule in section 203E that directors of a public company cannot remove one of their own are outside the scope of this piece, which is written for proprietary companies.
- Lodgement dates and fees. The article states the obligations that were read in the Act. It does not state ASIC lodgement deadlines or fee amounts.
- Anything involving the tax treatment of a decision. Where a dividend, a restructure, a share issue or a write-off is in contemplation, the accountant's numbers are usually needed before the legal work rather than after it, and we work alongside one rather than answering it ourselves.
The position stated is as at 27 August 2026, read from the Corporations Act 2001 (Cth) on that date.
