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.

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 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.

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.

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.

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:

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

The position stated is as at 27 August 2026, read from the Corporations Act 2001 (Cth) on that date.

Start with what the debtor has, not with what you are owed

The amount of the invoice tells you what is at stake. It tells you nothing about what you will get. The first hour of work on an unpaid debt should go into the debtor, not the debt, because every remedy below costs money and each one is worth using only against a counterparty that can pay.

Four things are worth knowing before anything is sent:

• Is it still trading? A company search shows whether it is under external administration, whether it has been deregistered, and whether its directors have changed recently. A recent change of director on a company that has stopped paying is a signal.
• Has anyone registered against it? A search of the Personal Property Securities Register shows who has security over its assets, and therefore who is ahead of you.
• Is anyone else on the hook? A director's guarantee, a parent company guarantee or a co-obligor turns an empty company into a solvent target. This is in the paperwork you already have, or it is nowhere.
• Are you the only one chasing? Court listings and the notices published by ASIC show whether other creditors have already commenced. If a winding up application is on foot, your position changes completely and you should not be spending money on a demand of your own.

A judgment against a company with no assets is an expensive piece of paper. We would rather establish that in the first week than bill a client to discover it in the sixth month.

The letter of demand still resolves most debts

It is the cheapest step and it has the highest strike rate, which is why it comes first. A demand that sets out the contract, the invoices, the amounts and a date for payment does most of the work in most matters, because a great many non-payments are not disputes at all. They are cash-flow decisions about who gets paid this month, and a debtor deciding that order pays the creditor who looks most likely to escalate.

A demand also improves your position later. A court considering costs looks at how each side behaved before proceedings began, and a creditor who set the case out properly, attached the documents and gave a reasonable time to pay is in a materially better position than one who went straight to a claim form.

Check the security you may already have

Before commencing anything, find out whether you can simply take the goods back. A supplier who sells on retention of title terms, and who has registered on the Personal Property Securities Register, may have a much faster route to value than any proceeding: the goods themselves.

The trap is that the clause alone is not enough. An unregistered interest can be worth nothing at exactly the moment it matters, which is when the customer goes into administration. We have written that half of the subject up separately, and it is the piece most commonly got wrong by suppliers exporting into Australia:

The PPSA trap: what German exporters must know about retention of title.

The general point holds beyond retention of title. Security, a guarantee, a right of set-off or a lien is worth checking before you spend money litigating, because each of them puts you ahead of the creditors who are about to be in the queue with you.

The statutory demand: what it is, and what it is for

A statutory demand is not a debt recovery tool. It is an insolvency tool that happens to recover debts. It does not order anyone to pay, and it produces no judgment. What it does is create a presumption of insolvency that lets you apply to wind the company up, and the prospect of that is what makes companies pay.

It is available only against a company. An individual debtor is a different regime under different legislation and nothing in this section applies to them.

Section 459E of the Corporations Act 2001 (Cth) sets the requirements. The demand may relate to a single debt or to several, each of which must be due and payable, and whose amount or total must be at least the statutory minimum. It must specify the debt and its amount, or the total; require payment, or security, or a composition to the creditor's reasonable satisfaction within the statutory period; be in writing and in the prescribed form; and be signed by or for the creditor. Unless every debt is a judgment debt, the demand must be accompanied by an affidavit verifying that the debt is due and payable.

The Act uses two defined terms and states neither figure. Both are set by the Corporations Regulations 2001 (Cth):

Both provisions carry an alternative figure, $20,000 and six months, for a company eligible for temporary restructuring relief. Those do not apply to any demand served on or after 1 August 2021, so for present purposes they are spent.

What non-compliance actually does

Failure to comply does not make the company liable to pay. It makes the company presumed insolvent. Section 459F(1) provides that where the period for compliance ends and the demand is still in effect and has not been complied with, the company is taken to fail to comply. Section 459C(2)(a) then requires the Court to presume that the company is insolvent if it failed to comply during or after the three months ending on the day the winding up application was made.

That presumption is the whole mechanism. Insolvency is otherwise a matter of proof, and proving it from outside a company is difficult and expensive. The statutory demand converts it into something the company has to disprove.

Section 459C(2) lists other triggers for the same presumption, and they are worth knowing because they may already have happened without your doing anything: execution on a judgment returned wholly or partly unsatisfied, or the appointment of a receiver over property subject to a circulating security interest.

The twenty-one days that cannot be extended

This is the single most consequential deadline in the area, and it catches competent people every year. A company served with a statutory demand that wants to challenge it must apply to set it aside, and section 459G(2) provides that the application "may only be made within" the statutory period after the demand is served.

Section 459G(3) then defines what making the application means, and it is two things, not one. Within that same period, an affidavit supporting the application must be filed with the Court, and a copy of the application and the affidavit must be served on the person who served the demand. Filing without serving is not an application under the section. Neither is serving without filing.

The High Court settled in 1995 that the period cannot be extended. In David Grant & Co Pty Ltd v Westpac Banking Corporation the company argued that the general power in section 1322(4)(d) of the Corporations Law, which allows a court to extend the period for doing any act, could be used to extend the 21 days. The Court rejected it unanimously.

The Court's reasoning was that Part 5.4 is a scheme for resolving solvency quickly, that it contains its own express powers to extend time where Parliament intended them, and that a later and more specific provision attaching a limitation to a particular class of application is not overridden by an earlier general one.

Two practical consequences follow, one for each side. If you have received a statutory demand, the clock started on service and the only safe assumption is that nothing will save you if you miss it. Get advice in the first days, not the third week. If you have served one, the deadline is your advantage and it is worth calculating the date precisely rather than approximately.

There is one piece of relief in the other direction. Where an application is made in accordance with section 459G, the period for complying with the demand runs until seven days after that application is finally determined or otherwise disposed of, and the Court may extend it further. So a company that files and serves in time buys itself the whole of the proceeding.

When a statutory demand is the wrong tool

A statutory demand is for a debt that is not genuinely in dispute. Used against a disputed debt it usually fails, costs the creditor money, and can be characterised as an abuse of process.

Section 459H applies where the Court is satisfied that there is a genuine dispute about the existence or amount of the debt, or that the company has an offsetting claim. The Court then calculates a substantiated amount by subtracting the offsetting total from the admitted total, and the demand is varied or set aside accordingly. The threshold is deliberately low: the company does not have to prove its dispute, only to show that one genuinely exists.

Section 459J provides two further grounds. The Court may set a demand aside where a defect in it will cause substantial injustice unless it is set aside, or where there is some other reason why it should be. Section 459J(2) makes clear that a defect alone is not enough: the Court must not set a demand aside merely because of a defect.

Winding up, and what it actually returns

The application to wind up is the point of the demand, and it is also the point at which most creditors stop wanting it. A liquidator is appointed, the company's assets are realised, and the proceeds are distributed. An unsecured trade creditor is at the back of that queue, behind the secured creditors, behind the costs of the liquidation itself, and behind employee entitlements.

So the honest position is this. Winding up is excellent leverage and it is a poor recovery mechanism. Most statutory demands are paid rather than litigated, and that is where the value sits. Where the company genuinely cannot pay, the application produces a liquidation in which you may recover very little, and you will have funded the exercise for the benefit of every other creditor.

That arithmetic is worth doing before the demand is served rather than after it is ignored, because a creditor who serves a demand and then does not want to follow through has spent money to reveal that it will not escalate.

The money you were paid can be taken back

Being paid is not always the end of the matter. Where the company is later wound up, a liquidator can recover payments the company made to a creditor in the period before the winding up, on the basis that they were an unfair preference.

Section 588FA provides that a transaction is an unfair preference where the company and the creditor are parties, and the transaction results in the creditor receiving more in respect of an unsecured debt than it would have received if the transaction were set aside and it proved for the debt in the winding up. Section 588FE(2) makes such a transaction voidable where it is an insolvent transaction entered into during the six months ending on the relation-back day, or after that day but on or before the day the winding up began.

There is an important qualification in section 588FA(3) for ongoing trading relationships. Where the transactions are, for commercial purposes, an integral part of a continuing business relationship such as a running account, and the level of net indebtedness rises and falls across a series of transactions, all of those transactions are treated as a single transaction. The question then is the net effect across the relationship, not the individual payments. For a supplier who kept trading, that is usually a considerably better position than a payment-by-payment analysis.

The director's exposure is a separate question, and it changes the negotiation

A director who lets a company incur debts while it is insolvent can be personally liable for them. Section 588G applies where 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 it, and there are reasonable grounds at that time for suspecting insolvency.

Section 588GA provides the safe harbour. The liability does not apply where, 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 business. The protection ends at the earliest of the person ceasing to take that course of action, the course of action ceasing to be reasonably likely to lead to a better outcome, or the appointment of an administrator or liquidator. The note to the subsection records that the director bears the evidential burden.

A creditor does not enforce section 588G directly; a liquidator does. But it matters to a creditor for a practical reason. A director who understands that continuing to trade while insolvent is a personal exposure has a strong reason to deal with your debt rather than let it sit, and a strong reason to take advice early. It is one of the few points at which a company's problem becomes an individual's problem, and it changes how negotiations go.

Unpaid tax carries a further personal exposure for directors, on its own timetable and under different legislation. We have not set out that regime here and it should not be assumed to work the same way.

Where the debtor is overseas, or you are

Cross-border debts change the sequencing rather than the remedies. A foreign supplier owed money by an Australian company has the whole of the above available to it, and the statutory demand in particular is often a surprise to counterparties used to a jurisdiction with no equivalent. It does not require the creditor to be in Australia.

What changes is the groundwork. Service on an overseas party, the governing law and jurisdiction clauses in the contract, whether an Australian judgment will be recognised where the assets are, and whether registration on the Personal Property Securities Register was ever done are all questions that should be answered before a strategy is chosen rather than after.

Where the debt sits under a foreign law or the assets sit in a foreign country, we work with local counsel in that jurisdiction. That is a real limit and it is better stated at the start.

The order, and what each step is for

The sequence is the advice. Almost every mistake in debt recovery is a step taken out of order: a demand sent before anyone checked whether the debtor had assets, a statutory demand used on a disputed debt, a winding up application funded by a creditor who did not want a liquidation.

Steps two and three are cheap and are almost always worth taking. Steps four to six cost real money and each should be a decision made on what the search in step one turned up.