AUSTRALIA BELGIUM CHINA FRANCE GERMANY HONG KONG SAR INDONESIA (ASSOCIATED OFFICE) ITALY JAPAN PAPUA NEW GUINEA SAUDI ARABIA SINGAPORE SPAIN SWEDEN UNITED ARAB EMIRATES UNITED KINGDOM UNITED STATES OF AMERICA

Director's Duties

24 July 2015

A Legal and Lego Perspective

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Personal Civil Liability

• Fine up to $200,000

• A compensation award

• An injunction stopping the breach of duty

• Disqualification from managing companies for up to 10 years

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Personal Criminal Liability

• Fine up to $340,000

• Imprisoned for up to five years

Care and diligence

Duty to prevent insolvent trading

Good faith / best interests/proper purpose

Use of position Use of information

Duty to avoid conflict of interest / conflict of duty

Duty to exercise powers and discharge duties with degree of care and diligence (s180)

This extends to the preparation of the company's financial statements

Ensure company is able to pay all debts as and when due and payable.

(Personal liability of directors)

Duty to exercise powers and discharge duties in good faith in best interests of corporation and for proper purpose (s181)

(Also criminal offence)

Must not improperly use position to gain advantage for themselves or someone else or cause detriment to corporation (s182)

(Also criminal offence)

Must not improperly use information to gain advantage for themselves or someone else or cause detriment to corporation (s183)

(Also criminal offence)

Duty to avoid positions of conflict of interest or conflict of duties

Supplemented by s191 – requirement to disclose "material personal interests"

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Directors' duties – statutory/general law

Other duties include duty of confidentiality

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Duty of care and diligence

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Duty to prevent insolvent trading

Essential role of directors –financial statements

• Directors must read, understand and focus upon the contents of financial statements before approving them in order to ensure (as far as reasonably possible) that the information included in them is accurate.

• This duty cannot be delegated.Everyone must be

Batman

Centro case (2011)• Financial statements failed to

disclose that US$2.1 billion of debt was due in the next 12 months

• Directors signed off on accounts but did not know they were wrong

• ASIC sued 8 directors

• Court found:– Directors should have been

aware of the liabilities– Directors should have asked

questions

Ignorance is no excuse

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Good faith and proper purposeDirectors must act in good faith in the best interests of the company and for a proper purpose

Loyalty: Misuse of information or position• Directors/officers/employees must not

misuse information or position to advantage themselves or someone else or to harm company

• Directors/officers must not divert corporate opportunities to themselves or other entities in which they are interested

• Misuse of corporate information may also contravene prohibition on insider trading No joy riding in the company

car!

…or helicopter

Loyalty: Conflicts of interest

Directors must avoid situations where there is a conflict between company's interests and:

- their personal interests; or

- their duty to another person/company

The Smithers Memorial Trust will

switch to using nuclear powerit's…. excellent

Common Mistakes on NFP Boards

1. Conflicts aren't managed2. Deferring to CEO / Chair3. Relying on experts exclusively4. Not understanding finances5. Treating property as own6. Disengaged directors7. Not focusing on mission8. Micro vs strategic focus9. Not seeking professional advice10.Assuming your questions are silly

Everything is NOT awesome if…

• 'Because we've always done it this way

Jane makes all the decisions about insurance

Numbers? yuck! Whatever you say

My cousin would make a great CEO – no need to recruit

The company forklift made moving house a breeze

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• Honest & respectful Culture– Disagreement is good!

• Systems and Policies – Don’t wing it – get advice!

• Training for your board– Early and often

• Diversity on the board– Of skills– Of ages– Of genders– Of professions– Of closeness to the issue

Vaccinate your board

Actively Manage Risk

Do you keep all board information confidential (eg. documents in a safe place; not

sharing information)?

Do you read the agenda and papers supplied before the

meeting?

Do you go to meetings prepared to make a decision?

Do you know if you need more

information before you can make a

decision?

Do you turn up to every meeting on

time?

How to tell if you are doing a good job?

Do you read the minutes after each

meeting to make sure they are accurate and reflect the things aid and decisions made?

If the minutes are not correct, do you discuss that with the Secretary and board at the next meeting to have them

amended?

Do you do some of the talking and also listen carefully to the views

of others during meetings?

Do you understand the key information about what the organisation

does and how it is run?

Do you ask the management questions

about the work they are doing and the

information they are giving you?

Do you understand the answers?

Are you happy with the answers?

Do you have a clear idea about how you

want the organisation to grow in the next 2, 5

and 10 years?

Are you happy that everyone is doing

everything they can to make the company

successful?

Do you promote the organisation?

How to tell if you are doing a good job?

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And above all… have fun!

AUSTRALIA BELGIUM CHINA FRANCE GERMANY HONG KONG SAR INDONESIA (ASSOCIATED OFFICE) ITALY JAPAN PAPUA NEW GUINEA SAUDI ARABIA SINGAPORE SPAIN SWEDEN UNITED ARAB EMIRATES UNITED KINGDOM UNITED STATES OF AMERICA

This presentation material is intended to provide a summary of the subject matter covered for training purposes only. It does not purport to be comprehensive or to render legal advice. No reader should act on the basis of any matter contained in this presentation without first obtaining specific professional advice.

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