Level 13 Aurora Place
,
88 Phillip Street
,
Sydney NSW 2000
Being a director in NSW is a rewarding role. It offers the chance to shape business strategies and contribute to long-term success. However, it also comes with director responsibilities and duties, and occasional challenges can arise, including the risk of personal liability. The good news is that with the right knowledge, preparation, and safeguards, you can confidently navigate your duties while protecting yourself from potential liabilities.
This guide will walk you through five practical strategies to reduce risks, strengthen governance, and safeguard your personal position—so you can focus on driving your business forward with peace of mind. Let’s explore how you can stay compliant while feeling empowered in your role as a director.
1. Understand your directors’ responsibilities and duties
Under Australian law, specifically the Corporations Act 2001 (Cth) (Corporations Act), directors have specific duties and obligations. Failing to comply with these duties can lead to a number of legal and financial consequences. The first way to avoid these consequences is to understand the three key personal liabilities of directors under the Corporations Act.
2. Obtain and maintain adequate Directors’ and Officers’ (D&O) insurance
D&O insurance offers financial support to cover legal costs and damages associated with claims made against directors. When choosing the best D&O insurance policy for your company, it’s important to regularly review the terms and coverage limits to ensure you are covered for your specific risks, exposures and any changing circumstances. Working closely with an insurance broker and a commercial lawyer can help you understand your unique insurance needs and obtain the most appropriate policies to help you mitigate potential risks.
3. Be cautious when signing a personal guarantee
A personal guarantee can put a director’s personal assets at risk if their company defaults on its obligations. Before you sign a personal guarantee, consider negotiating its terms and removing the guarantee altogether. This can help you to limit your exposure and protect your personal assets. An experienced commercial lawyer can help you understand and navigate the following aspects of a guarantee:
- the scope, including the extent and limitations of the obligations or liabilities you agree to cover;
- the circumstances under which it may be enforced;
- any recourse available in the event of a default; and
- negotiating the terms.
4. Stay informed
In order to effectively manage risks and fulfill your director duties with confidence staying informed and understanding relevant changes to legal and regulatory requirements is key. Conducting independent research, attending professional development events, and consulting with a commercial lawyer are three effective ways to stay informed on amendments to director’s duties and insolvency laws.
5. Protect your assets
The best and most practical way to protect your assets is not to own them in your personal name. Owning assets in a company or trust is a practical alternative and will significantly reduce the risks of a creditor pursuing you through the courts.
By seeking professional advice and adopting a proactive approach to asset protection and planning, directors can help to minimise personal liability risks, protect their financial interests and ensure their assets are passed to the next generation.
Disclaimer – The information in this website is general information only and should not be taken as constituting legal advice. The information in this website is up to date as at the time of preparation however, some information and terms may change from time to time. Before acting on any information, you should consider the appropriateness of it having regard to your objectives, unique situation and needs. Consider seeking independent legal, financial, taxation or other advice to understand how information on this website relates to your unique circumstances. H+A Legal is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this website.
