Corporations Act 2001: 5 Board Responsibilities

The board of directors has many responsibilities under the Corporations Act 2001. They include:

Directors’ Duties

Directors and officers have strict duties under the Act, including:

• Duty of Care and Diligence (s.180): Directors must act with the level of care and diligence that a reasonable person would exercise in their position.
• Duty of Good Faith (s.181): They must act in good faith, in the best interests of the company, and for a proper purpose.
• Duty Not to Misuse Position (s.182): They must not improperly use their position to gain an advantage for themselves or someone else, or cause the company harm.
• Duty Not to Misuse Information (s.183): Information obtained through their role must not be improperly used for personal benefit or to the company’s detriment.

The duty of care requires directors to stay informed, ask questions, and make fact-based decisions. Acting in good faith means prioritising the company’s long-term success over personal preferences. Meanwhile, the prohibitions against misusing position or information prevent conflicts of interest and insider advantages. All these are aimed at protecting the stakeholders.

Financial Responsibilities

The financial responsibilities of directors and the board are outlined in three key sections:

• Preventing Insolvent Trading (s.588G): Directors must ensure the company does not incur debts it cannot pay.
• Approving Financial Reports (s.295): Boards must ensure accurate financial reporting and compliance with accounting standards.
• Keeping Proper Financial Records (s.286): Boards are responsible for ensuring the company maintains adequate records.

In short, the act states that directors can’t allow the company to continue trading if it’s unable to meet its financial obligations.  

Boards are also responsible for approving financial statements that reflect a fair view of the company’s performance. This involves working closely with auditors and ensuring timely disclosures.

Maintaining adequate records is not just an administrative requirement. It provides transparency for shareholders and supports regulatory compliance.

Oversight and Compliance

The act regulates key aspects of oversight and compliance, including:

• Corporate Governance: The board must oversee management and ensure compliance with the Act and other regulations.
• Disclosure Obligations: Listed companies must comply with continuous disclosure requirements (s.674) so markets remain properly informed.
• Shareholder Rights: Directors must act in accordance with shareholder approvals where required (e.g., significant transactions, related party dealings).

Oversight responsibilities support the board’s role as a guardian of accountability. Boards must set up structures to supervise management and monitor compliance with all applicable laws.

For listed companies, proper ESG reporting is especially important because shareholders rely on timely updates to make informed decisions. This means any information that could materially affect share prices must be disclosed without delay.

Boards also serve as protectors of shareholder rights by ensuring that major corporate actions, such as mergers, receive appropriate approval. This keeps decision-making transparent and investors, especially ESG funds, happy.

Risk and Strategy

While not spelled out in one section, the board has an implied responsibility to:

• Monitor the company’s risk profile.
• Approve major strategic decisions.
• Ensure there are systems to detect and respond to risks (financial, operational, legal, reputational).

Boards must take an active role in understanding the risks the company faces. Strategic responsibility means weighing these risks when approving new business ventures.

Risk oversight also requires establishing systems that can detect warning signs early. A proactive approach helps companies remain resilient in changing environments.

Consequences of Breach

As discussed earlier, the consequences of failing to stay compliant with the Corporations Act 2001 can be severe. They include:

• Civil penalties (fines, compensation orders).
• Disqualification from managing corporations.
• In severe cases, criminal liability (e.g., for dishonesty or reckless conduct)

Directors who fail in their duties can be disqualified from managing companies. If the breach involves fraud or reckless conduct, it can turn into a criminal case.