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Common Law Duties

Each decision of a director can be scrutinised against what could have been done to most benefit the company by that director. Breaches of this duty allow a company to sue the director for damages suffered. This general duty includes the following specific duties.

Directors are under a duty to exercise discretion. This means they must use their independent, informed judgment in managing a company. Directors can delegate their discretion on certain matters and delegation can be valid if done carefully in the best interest of the company.

Directors are under a duty, and have a right, to deliberate. This means they must make a positive effort to be involved in, discuss, consider and use their discretion in acting on company matters.

Directors are under a duty to exercise power for proper purposes. A power that is exercised for a wrongful purpose is invalid. For example, a director may be acting with an improper purpose if new shares are issued, the company is restructured or gifts are made from the company's resources, to increase the power of that director. Acts performed for an improper purpose may be declared invalid, for example, issuing shares to defeat a takeover or to retain control of the company.

Directors are under a duty to avoid conflict of interest. A director usually cannot use an opportunity that arises in the course of business to profit personally at the expense of the company. In addition, a director cannot compete with the company, use the company's property for personal purposes or enter into contracts for the supply goods or services for the company unless making full disclosure to the company.

A director must also avoid any appearance, or mere potential, for a conflict to be perceived or to occur. Should a conflict of interest arise, a director must disclose the interest to the company. A director who does not declare a personal interest in an issue affecting the company commits an offence. If an interest is declared, the other directors may ask that person not to vote on the issue.

A director may be personally liable while acting on behalf of a company for any injuries suffered by people. Similarly a director may personally commit a crime even though acting for a company.

Common Law Duties  :  Last Revised: Wed Mar 13th 2002
The content of the Law Handbook is made available as a public service for information purposes only and should not be relied upon as a substitute for legal advice. See Disclaimer for details. For free and confidential legal advice in South Australia call 1300 366 424.