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Silent directors must be both seen and heard

Company Law News | August 2013

It is relatively common for a director of a company to assume the role of a so-called “silent” director – that is, a director who is relatively “hands off” and who remains in the background and away from the daily grind of the company’s management, oversight and operations.

“Silent” directors must, however, take heed of the manifold duties and obligations that are imposed by the Corporations Act and common law. These directors duties apply equally to all company directors, whether they are “silent” or not.

Directors of all kinds should note particularly Section 181 of the Corporations Act, which obliges directors to act always in good faith and in the best interests of their company. Similarly, directors are required by the Act always to use their power as directors for a “proper” purpose. And cognisance of the duty to ensure that a company does not trade while insolvent (Section 588G) must always be front-and-centre in everything a director does.

In ASIC v Healey (2011) (the case against the directors of Centro), Middleton J reiterated that all directors must bring a “diligent” and “intelligent” mind to bear on the affairs and management of their companies. This necessarily involves close scrutiny of all information available to a director and observation of that director’s responsibilities to the company.

The practical upshot is that it is no defence for a director of a failed or distressed company to say that they relied in their role as director on the advice of accountants, third party advisers and others in dispensing with their functions. The director of a company owes a personal duty to keep up-to-speed with the financial position and affairs of the company.

Forum Law’s Annette Fontana has extensive experience advising company directors on their duties and responsibilities. If you have any questions or concerns in this regard, please contact Annette to discuss your position today.

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