Directors Duties

*This page is only a brief summary of the law.*

Duties Directors Owe to their Company Directors’ personal liability can flow from:

Trade Practices

Almost every aspect of business is affected by the Trade practices Act 1974. The Act provides obligations for companies and company directors which include:

Tax

This document does not contain a checklist for any taxation matters, including fringe benefits tax or goods and services tax. Any person requiring taxation advice should retain the services of taxation, accounting or financial adviser.

Insurance

Not only is insurance a risk management mechanism, but in certain instances directors may be found negligent or in breach of their fiduciary duties by failing to ensure the company has adequate insurances.

Occupational Health and Safety
Directors may be liable under the Occupational Health and Safety Act 1983

http://www.austlii.edu.au/au/legis/nsw/consol_act/ohasa1983273

Industrial Relations

Directors must be aware of relevant awards, legislation and industry standards affecting their company, including:

Environmental

Directors may be liable under a number of pieces of legislation relating to the environment, including water, air, waste disposal and site contamination.

Banking and Finance Acts

Directors have certain responsibilities under the Corporations Law (http://www.austlii.edu.au/au/legis/cth/consol_act/cl184) in relation to banking and finance arrangements of the company.

Intellectual Property

Directors must ensure that the company is not in breach of any intellectual property rights of other persons, including copyright, software licences, trade marks, trade secrets and operative know-how. Similarly, directors should ensure that the intellectual property of the company is protected.

Criminal Activity

Directors, in certain circumstances, may be liable for criminal acts including:

Directors owe duties to the company and others which, if breached, may be challenged and may lead to liability. Directors must act: honestly in good faith to avoid conflicts of interest for a proper purpose with care and skill.

Duty to act honestly:

Directors must act in good faith in the best interests of the corporation and for a proper purpose.

A director of a wholly owned subsidiary will be considered to act in good faith in the best interests of the subsidiary if:

Directors must not make improper use of their position or information acquired through that position, to gain an advantage for themselves or any other person or to cause detriment to the company.

Duties of care and skill

Directors are required to discharge their duties with the same degree of care and diligence that the court considers a “reasonable” person in a similar position would exercise.

This is an objective standard of care which may differ depending on the circumstances (ie the size of the company and experience, position and responsibilities of the director).

The courts expect directors to understand the nature and effect of their duties, and are unwilling to accept ignorance as an excuse for a breach of duty.

Material personal interests

A director must disclose all material personal interests at a director’s meeting that the director has in relation to the affairs of the corporation. For a proprietary corporation, a director is not required to give notice when the other directors are aware of the nature and extent of the director’s interests.

Business judgment rule, Directors are not liable for breaches of the duty to exercise care and diligence (at common law, in equity or under the Corporations Law if the breach arises from a business judgement:

Statutory derivative action

A present or former member or present or former officer of a corporation who is granted leave by the Supreme Court is able to commence an action, or take responsibility for a proceeding against a director for breach of directors’ duties on behalf of a corporation, where the corporation is unwilling or unable to do so.

Penalties

The Corporations Law imposes penalties in circumstances where these duties are breached. In addition orders may be made for the payment of damages incurred by other parties as a result of a breach of duty.

Duties owed by directors to third parties, Trading whilst insolvent

Directors are able to delegate their powers but remain responsible for the exercise of the power unless they believe:

Using the company name

If directors acting on behalf of the company use or authorise the use of any business document (eg letter, account, invoice, order) or sign, issue or authorise cheques or other negotiable instruments on which the name of the company does not appear that person is guilty of an offence. In certain circumstances directors may be personally liable for the relevant instrument and/or any subsequent damages where they permitted it to be signed and/or used and where the company is unable to meet the resulting liability. A company must put its name on all public documents (eg letters, accounts, invoices) and negotiable instruments (eg cheques).

Directors must not allow the company to breach these requirements or they may be subject to a penalty.

In accordance with the Corporations Law

These include:

ASIC Notifications

Directors must ensure that the ASIC is notified of certain events, changes in a company or at particular times of the year. The Corporations Law often refers to an event that must be notified to the ASIC on the appropriate “form”.

These forms can be found at the ASIC Business Centres or on the ASIC website (http://www.asic.gov.au ).

Notifiable events include:

Some ASIC notifications are subject to fees. The ASIC imposes time limits on lodgements and penalties are payable if notifications are lodged outside these timeframes.

Trading trusts

Where a company is the trustee of a trust (“Trustee Corporation”) it should be fully indemnified from the assets of the trust for any debt(s) incurred while acting as trustee, failing which the Trustee Corporation and its directors at the relevant time will be jointly and severally liable for the debt(s).

Directors may avoid liability under these provisions if they hold an indemnity from one or more of the other directors. However, directors will remain liable under the insolvent trading provisions mentioned above, should they be invoked.

Payment of unlawful dividend

The payment of company dividends must be made out of profits only. If incorrect dividends are paid, the directors may be personally liable.

Guarantees

Where a director signs an agreement purporting to guarantee the performance of the company’s obligations they will usually be personally liable under the guarantee. Care should be taken in completing credit applications where guarantees are often incorporated and may not be immediately recognisable.

Company secretaries

If a proprietary corporation does not appoint a secretary, each director of the corporation is liable for a breach of the responsibilities of a secretary.

Trade practices

The Trade Practices Act 1974 (Cth) affects almost every aspect of the every day running of a business, including product liability, consumer protection and competition policy.

The Trade Practices Act imposes liability upon “persons concerned in the contravention of the Act”. Where a company has contravened a provision of the Act, directors of that company may be found to be persons concerned in the contravention.

The maximum fine for a breach of Part IV is $10 million for companies and $500,000 for individuals.

The maximum fine for breach of Part V is $200,000 for companies and $40,000 for individuals.

Set out below is a summary of the main provisions of which all companies and their directors should be aware.

Anti-competitive agreements (Part IV)

This Part of the Trade Practices Act concerns contracts and other agreements which affect competition, either specifically or generally in relation to price. Contracts, arrangements or understandings which have the purpose or effect or likely effect of substantially lessening competition are prohibited and are unenforceable if made.

Further specific prohibitions include:

Consumer Protection (Part V)

The primary consumer protection provision is contained in section 52 of the Trade Practices Act being the prohibition against misleading or deceptive conduct in the course of trade or commerce. This section has been interpreted widely to cover such matters as advertising, oral representations and even representations with respect to contractual matters.

Product Liability (Part VA)

The Trade Practices Act provides that a manufacturer or importer of goods will be strictly liable for defects in those goods. Goods will be defective if they do not provide the level of safety which persons generally are entitled to expect, taking into account all the relevant circumstances.

Company directors should consider the following points in respect to its dealings with competitors and resellers and compliance with Trade Practice law:

A. Do you exchange information with your competitors about respective pricing policies?

B. Do you belong to a trade association where the question of pricing is raised?

C. Do you agree with competitors that you will only sell to particular customers or only sell particular goods or services and that they will do likewise?

D. Do you impose restrictions on your resellers or dealers about the prices at which they may advertise or sell goods you supply to them?

E. Do you impose restrictions on your resellers or dealers as to what goods or services they may acquire elsewhere or the trader from which they may acquire those goods and services?

F. Do you insist that your resellers or dealers acquire the goods and services of a third party in conjunction with your own goods and services?

G. Do you restrict your dealers from selling products competitive to your own?

H. Do you restrict your dealers as to the territories in which they may sell and the customers to whom they may sell?

I. Do you engage in differential pricing (including rebates, discounts, etc) between customers which is not based on differences in quantities, delivering costs or other sound commercial reasons?

If you answered YES to any of the above you should seek legal advice.

Mergers and Acquisitions

1. Are you in a concentrated market (ie there are few providers of goods/services)?

If YES, do you know what legal restrictions are placed on any mergers with or acquisitions of other businesses in your market.

2. Do you know when a merger or acquisition may need to be authorised by the ACCC?

Directors check list

1. Do you have procedures in place to ensure all advertising, promotional materials and other public statements made about your products and services are truthful and give a truthful impression?

2. Do you ensure that you do not make false or misleading claims as to the standard, quality, value or grade, composition, country of origin, pricing or performance characteristics, uses or “newness” of goods?

3. Do you ensure you do not make false claims about any sponsorship, approvals or affiliation with others?

4. Do you ensure that any statements made in relation to future matters (such as benefits to be obtained from using your products or services) are based on reasonable grounds?

5. Do you ensure that when you are contracting with customers that you disclose all the material terms of the contract and give the other party an opportunity to get independent legal advice?

6. Do you ensure that any prizes or gifts offered in a trade promotion are available “as offered”?

7. Do you ensure that you have adequate stocks to meet the demand that may be generated by advertising or promotions?

8. Do you ensure that your staff do not unduly harass customers to buy or pay for goods and services?

9. Are you aware of the restrictions on sending unsolicited debit or credit cards or providing unsolicited goods or services?

10. Do you ensure that you and your employees do not take advantage of customers with weak bargaining positions and exert pressure or use unfair tactics to clinch a sale?

11. Do you regularly sell goods or services to customers which: are priced at $40,000 or less; or are priced at more than $40,000 but which are of a kind ordinarily acquired for personal, domestic or household use?

12. If so, do you know what conditions and warranties are imposed at law into your contract with such customers?

13. Do you know what product safety standards have been prescribed in relation to the goods and services you sell or supply?

14. Do you know what product recall procedures you must follow if a product you sell or supply is unsafe?

15. Do you understand what your legal exposure may be if you sell or supply goods which cause injury or damage?

Tax

Companies must obtain a tax file number (“TFN”) from the Australian Taxation Office. Directors may be prosecuted personally under the Income Tax Assessment Act (http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1936240) for a tax offence committed by the company.

It is a defence to liability if the director proves that he or she did not aid, abet, counsel or procure the act or omission of the company and was not in any way knowingly concerned in or a party to that act or omission.

As a matter of policy the ATO will usually prosecute the company rather than the individuals who manage it. However, this may not be the case where the company has insufficient assets, where the directors were deliberately using the company to defeat the operation of the tax laws or where the company has already been prosecuted for a tax offence and it is apparent that the prosecution has not deterred the company from re-offending.

Director’s penalty notices

If a company fails to remit to the ATO certain tax instalment deductions (such as PAYE, PPS, withholding tax and natural resource payments) the directors will be personally liable for those amounts.

However the Commissioner of Taxation must first serve a Directors Penalty Notice (“DPN”) on the director(s) demanding that the company complies within 14 days to either pay the debt in full, make an arrangement to pay the debt or places the company into administration or liquidation.

Individual directors will not be personally liable where they can show that, due to illness or some other good reason, they did not take part in the management of the company at the relevant time or that they personally took all reasonable steps to ensure the company complied with its obligations to remit the taxes.

Insurance

There are many areas in which insurance cover is critical to protect the interests of a company and its directors. Directors must consider the types of insurance needed to adequately protect the company against accidents and other unforseen events.

In some instances, such as workers compensation, the provision of insurance is mandatory. In other cases, directors may be found to be negligent or in breach of their fiduciary duties to the company by failing to take out such insurance.

Company directors should consider the following points:

1. Is there a register detailing all insurances held, identity of insurers, policy numbers and currency of same?

2. Workers Compensation

3. Is there workers compensation? Are wages declarations regularly updated?

4. Is there a procedure for claims? Is there a procedure for notifying the insurer of all claims?

5. Does the company have an officer who is responsible for the administration of workers compensation claims?

6. Does the company have a register of all vehicles owned or operated by it?

7. Are all vehicles insured for damage to third parties? Are all vehicles comprehensively insured in respect of accidental damage, theft or malicious damage?

8. Are all vehicles regularly maintained and serviced?

9. Generally does the company have insurance for loss to the premises and contents:

10. Is there insurance for product liability; professional indemnity; public liability?

Occupational health and safety insurance

The Occupational Health and Safety Act (the OHS Act) imposes obligations on employers to meet minimum standards of health and safety in a number of areas, many of which are listed in the checklist below.

The OHS Act requires all employers to ensure the health, safety and welfare at work of their employees. Criminal convictions against employers under the OHS Act attract a maximum of $500,000.

Where a company contravenes the OHS Act, directors will be deemed to be in breach unless the court is satisfied that: the director could not influence relevant conduct of the company; or the director used all due diligence to prevent the contravention by the company.

It was previously a defence if directors could prove the company contravened the provision without their knowledge. This is no longer the case. Directors may be prosecuted whether or not the company has also been prosecuted or convicted.

Directors must ensure that their company has documented policies in relation to all matters covered by the OHS Act including sanitation, safe use, handling, storage and transport of any machinery and substances.

Additionally, there should be a training program to ensure that employees and management are kept abreast of those policies. Those documented policies should include a mechanism to inform WorkCover of the occurrence of any accidents, work related illnesses or other events affecting the health and safety of employees.

Regular inspections should be conducted to ensure compliance with the policies. It may be prudent to establish an occupational health and safety committee to monitor compliance, provide a conduit for complaints and remain up to date with the law.

A first aid and rehabilitation policy should also be implemented.

Occupational health and safety checklist
Are you complying with minimum standards in the following areas:

1. crowding;

2. ventilation;

3. humidity;

4. heating of work areas;

5. gas apparatus;

6. prevention of excessive temperature;

7. provision of heating appliances and insulation;

8. clean air including air conditioning and smoking;

9. lighting/vision;

10. change rooms, toilets, lockers;

11. dining rooms; drinking water;

12. noise/hearing conversation;

13. lifts and openings;

14. floors, passageways, stairs and ceilings (eg. well lit, drained, non-slip, clean and obstruction free);

15. first aid facilities including sick bays;

16. fencing safe guards and hand rails;

17. fire fighting equipment;

18. standards of sanitation;

19. are hazardous substances appropriately stored?

20. does the company have an active education program to provide literature, training, instruction and supervision to all of its employees in relation to the maintenance of a safe workplace?

21. does the company regularly review documentation and procedures in light of the changing circumstances of the business and work environment?

22. does the company have an active accident reduction program?

23. does the company have adequate documented policies and procedures for Occupational Health and Safety?

24. Does the company regularly inspect all machinery and equipment and ensure they are adequately maintained and guarded (if required)?

Industrial relations

Employers and employees have duties under a contract of employment. Directors must be aware of any relevant awards, legislation and industry standards which affect the workplace. Breach of these standards could result in personal liability.

Engagement of Employee

All new employees must be furnished with either a letter of appointment, or an employment agreement or deed at the time of employment. This should include standard conditions of employment and things such as lunch and tea-breaks, responsibilities, study leave and sick leave.

If there is neither an employment agreement nor a letter of appointment, then the employment contract will be determined by custom and practice. All work place policies including those covering anti-discrimination, sexual harassment and equal opportunity must be made available to employees.

Discrimination

Impairment of equal opportunity due to a distinction on the basis of race, colour, sex, political opinion, national extraction or social origin may be discriminatory.

In Australia, an employer can not discriminate on the basis of age.

At the Commonwealth level, some of the legislation that regulates discriminatory behaviour includes:

1. Racial Discrimination Act 1975 (http://www.austlii.edu.au/au/legis/cth/consol_act/rda1975202);

2. Sex Discrimination Act 1984 (http://www.austlii.edu.au/au/legis/cth/consol_act/sda1984209);

3. Disability Discrimination Act 1992 (http://www.austlii.edu.au/au/legis/cth/consol_act/dda1992264);

4. Human Rights and Equal Opportunity Commission Act 1986 (http://www.austlii.edu.au/au/legis/cth/consol_act/hraeoca1986512)

Affirmative Action (Equal Opportunity for Women) Act 1990(http://www.austlii.edu.au/au/legis/cth/consol_act/aaeofwa1986634)

Any company which employs over 100 employees is required to have an affirmative action policy. The policy should state that the company recognises the relevant laws which regulate equal opportunity, and that the company encourages promotion and gives credit on the basis of ability.

Sexual Harassment

Sexual Harassment is specifically prohibited by legislation throughout Australia, in particular, the Sex Discrimination Act 1984 (Cth)

(http://www.austlii.edu.au/au/legis/cth/consol_act/sda1984209) states that sexual harassment can be direct or indirect and may be levelled at all persons in the workplace.

In the event of a law suit, the courts will examine employers’ anti-sexual harassment policy and how it is implemented. The policy must address what the company views as unacceptable behaviour and the steps it would take in the event of sexual harassment.

Disciplinary Action

Disciplinary action covers instances of performance, counselling and issues of serious misconduct by an employee; and can be a ‘one off’ talk to an employee, or the beginning of an action leading to dismissal.

On commencement of employment employees should be given an outline of the company’s policy regarding disciplinary action.

The chances of a dismissal being subject to an order for reinstatement or compensation is less likely if an employer has proceeded through a proper system of warnings to the employee, and duly recorded those warnings.

Termination of Employment

Employment may be terminated where an employee has not satisfactorily performed the job, or where the position has become redundant. Under the Workplace Relations Act (Cth) (http://www.austlii.edu.au/au/legis/cth/consol_act/wra1996220), employers must provide a valid reason for termination, either related to the employee’s conduct or based on the operational requirements of the business and be procedurally fair.

However, the method of termination depends on whether the employee is covered by an award, as the award may give rise to certain obligations. There are the following different approaches for termination:

Dismissal

The reasons for dismissal must be valid, for example, disobedience, persistent absenteeism or lateness, drunkenness, theft, physical threats, violence and intimidation.

Employers must also be procedurally fair. This is satisfied if employers follow a disciplinary procedure as discussed above.

Redundancy

The requirements for redundancy vary dependant on the relevant award and it is essential that those conditions be noted and followed in the event of redundancy. It is usual for an employee to receive a payment at the time of redundancy proportionate to the length of employment with the company.

Employment Checklist

1. Are regular training programs conducted in relation to the above policies?

2. Are all management staff aware of legislation regarding redundancy and termination?

3. Do you have formal procedures for the termination of employment?

Environmental

The majority of environment offences and penalties relate to environmental offences. The various states Penalties Act provides a three tiered structure of offences as set out below:

1. Tier 1 Offences – Serious Offences: These offences include disposal of waste without lawful authority, causing leakage or spillage of a harmful substance, emission of ozone depleting substances and the ancillary offences of aiding, abetting, attempting or conspiring to commit such an offence. Penalties are $1 million in the case of a company or in any other case $250,000 or 7 years imprisonment or both. Where the offence is proved against the company the directors risk being held liable for the ancillary offence of aiding, abetting, attempting or conspiring to commit such an offence.

2. Tier 2 Offences – Mid-Range Offences: These offences occur under a number of other acts including the Clean Air Act 1961, the Clean Waters Act 1970, the Noise Control Act 1975 and the Pollution Control Act 1970. The penalties involved are fines ranging from $1,500 to $30,000.

3. Tier 3 Offences – Minor Offences: These offences also arise under the legislation detailed under the Tier 2 Offences, but only involve maximum penalties of $600

The types of offences which can be committed are broad ranging and in certain cases also include imprisonment, along with monetary fines from $2,000 upward. In the case of a contravention of a provision of the Environmental Offences and Penalties Act, a director is taken to have also contravened the Act unless the director can satisfy the court that: the company contravened the provision without the knowledge of the director; the director was not in a position to influence the conduct of the company in relation to its contravention of the provision; or the director used all due diligence to prevent the contravention by the company.

It is therefore imperative for directors to ensure that their corporations have in place strict compliance programs and are aware of all relevant environmental legislation affecting their industry.

Banking & Finance

Banking and finance directors have responsibilities concerning the financial management of their company. This section will consider some of the responsibilities specific to equity and debt finance. In simple terms, equity finance is the provision of capital (generally in the form of cash) to a company by a person in return for the issue of shares or other securities in the company.

Debt finance is generally money advanced to the company in return for some form of security or assurance that the money will be repaid, for example, a mortgage.

Responsibilities in relation to equity finance

A company’s Constitution generally provides the directors of a company collectively, or the director for a sole director company, with the power to offer and issue securities of the company. This power can normally be exercised by the directors approving the offer and issue of securities by resolution passed at a duly convened meeting of directors.

The duties of directors outlined above apply generally to the issue of securities and use of share capital. The duty to act honestly and in good faith has been applied specifically to the issue of securities. The duty requires: powers to be exercised for a proper purpose; and directors to act in good faith in the best interests of the company as a whole.

The duty requires issues of securities to be for the purpose of raising capital for the company as a whole. It prohibits the issue of securities where the primary purpose of the issue is to retain control amongst existing shareholders or directors, dilute voting power or create a new majority shareholder.

Directors also need to be careful to ensure: that the procedure of the offer and issue of any securities complies with the company’s Constitution; that the offer or issue of securities complies with corporation’s law.

The Corporations Act generally prohibits the offer of securities unless that offer is accompanied by a prospectus which has been lodged (and registered) with ASIC

A number of specific exemptions are provided to this general prohibition including:

1. the ability to make 20 offers of securities in any 12 month period;

2. for an issue of securities that varies or alters the rights of existing security holders;

3. that the procedure for variation of class rights in the company’s Constitution or the Corporations Law is complied with;

4. that the company does not financially assist the acquisition of shares or units of shares in itself or a holding company, except as permitted by the Corporations Law; for public companies, that the issue of securities does not amount to the provision of a financial benefit to a related, except as permitted by the Corporations Law;

5. that the offer or issue of securities does not breach any agreements or arrangements of which the company is a party, for example, charge documents; and that the relevant notification documents are lodged with ASIC within the prescribed period after the issue of the securities.

Check List

1. Have you considered whether the issue of securities will result in a variation of the rights of existing security holders?

2. Does the arrangement for the issue of the securities amount to financial assistance for the acquisition of the company’s or a holding company’s shares?

3. Does the issue of the securities amount to the provision of a financial benefit to a related party?

4. Does the issue of the securities breach any arrangement or agreement of which the company is a party?

5. Have you arranged for ASIC to be notified of the issue of the securities?

Debt finance/factoring:

Responsibilities in relation to debt finance It is important to for directors to ensure that: execution of a document or agreement is not in breach of or beyond the powers provided by the company’s Constitution; the directors comply with their duty to ensure the financial arrangement or security is for the benefit of the company; for public companies, that financial arrangement or security does not amount to the provision of a financial benefit to a related party, except as permitted by the Corporations Law that the financial arrangement or security does not breach any agreements or arrangements of which the company is a party, for example, charge documents; and if necessary, the financial arrangement is registered.

For example, the Corporations Law requires registration of fixed and floating charges.

Check List

1. Is the execution of the document in accordance with the provisions of the company’s Constitution?

2. Is the financial arrangement or security for the benefit of the company?

3. For a public company, does the financial arrangement or security amount to a prohibited financial benefit to a related party?

4. Does the financial arrangement or security breach any agreements or arrangements which the company is a party?

5. Does the financial arrangement need to be registered?

Consumer Credit Code

The Consumer Code regulates certain loans to, and mortgages and guarantees given by, individuals or strata corporations (as defined). The Code sets out the necessary criteria to determine if these transactions are regulated and also sets out exemptions.

One criteria is whether the credit is intended to be provided wholly or predominantly for a personal household or domestic purpose.

If, in any proceedings, a party asserts that a credit contract, mortgage or guarantee is regulated by the Code, then, this is presumed to be the case unless the contrary is proved.

However, the Code will be presumed not to apply if the credit is to be applied wholly or predominantly for business and/or investment purposes and the lender obtains a declaration to that effect before the credit contract is entered into from the debtor. The form of declaration is substantially prescribed by regulation.

The Code also has provisions concerning: requirements for:

1. Advertising of certain credit;

2. Application to certain contracts for hire of goods, whether or not the hirer has a right or obligation to purchase the goods;

3. Provisions applying where credit providers are linked with suppliers of goods or services, where the goods or services are financed wholly or partly by credit to which the Code applies; and

4. Credit-related insurance contracts.

If a corporation contravenes a provision of the Code, each officer of the corporation is taken to have contravened the provision if the officer knowingly authorised or permitted the contravention. Proceedings may be commenced against a director even though no proceedings are commenced against the corporation.

Trade Marks Act (Cth)

The Trade Marks Act (http://www.austlii.edu.au/au/legis/cth/consol_act/tma1995121) provides for the registration of trade marks and sets out what rights derive from registration. Directors may be liable under this Act if they aid or abet a company which infringes a registered trade mark.

Business Names Act (Vic) (NSW) etc.

Each jurisdiction in Australia is governed by separate business names legislation. The business names legislation regulates the use of business names registered in the jurisdiction and is regulated by the Department of Fair Trading in each state.

A business must register all business names being used. Directors may be liable if they do not register a registrable business name or if they infringe the business name of another person.

Crimes Act (Cth)

Under the Crimes Act (Cth) (http://www.austlii.edu.au/au/legis/cth/consol_act/ca191482) any person who aids, abets, counsels or procures in any way or is directly knowingly concerned in or party to the commission of any offence is deemed to have committed that offence.

This applies to directors being involved in the acts of the company.

The Crimes Act contains a number of provisions which apply specifically to directors. The following conduct by directors is a criminal offence:

1. Misappropriation of property – Any director who fraudulently takes or applies any property of the company for his or her own benefit or for the benefit of another person or company.

2. Misuse of company property or records – A director who takes physical and/or legal possession of company property with fraudulent intent and fails to make a true and sufficient entry in the company’s records.

3. Falsifying company records – A director who destroys or makes false entries in the records or omits material items from that company’s records.

4. Publishing fraudulent statements – A director who publishes or distributes any written statement which the director knows to be false with intent to deceive, or defraud a member of that company.

5. Defrauding the company – A director who defrauds or omits to do any act with the intent to cheat or defraud the company or any person having dealings with the company.

The penalty in each case is a maximum of 10 years imprisonment

Co-operatives Act

The Co-operatives Act (http://www.austlii.edu.au/au/legis/nsw/consol_act/ca1992157) establishes Co-Operative Societies and regulates the running of those societies such as Housing Societies, Trading Societies, Community Settlement Societies and Rural Societies.

When a society contravenes this Act each director of the society will be deemed to have contravened the same provision unless the director satisfies the court that: the society contravened the provisions of the Act without the knowledge of the director; the director was not in a position to influence the conduct of the society in relation to its contravention; or the director used all due diligence to prevent the contravention by the society.

Proceedings may be commenced against a director even though no proceedings have been commenced against the society.