Director Duties: What New Directors in Australia and NZ Need to Know
Most new directors accept their first board seat before they fully understand their legal duties.
That is not because they are careless. It is because most guides on director duties are written by lawyers for lawyers. They are long, full of section numbers and hard to apply to a real board meeting on a Tuesday night.
Yet the duties matter. They apply from the day you are appointed. They apply whether the seat is paid or unpaid, large or small, company or charity. And in some cases, directors can be personally liable when things go wrong.
The good news is that the core duties are simple to understand. They come down to a handful of ideas about care, honesty and loyalty. If you understand those ideas, ask good questions and keep records, you will be in a strong position.
This article covers the core duties in plain words, differences between Australia and NZ, not-for-profit and charity boards, protecting yourself, training and questions to ask before you join. It is general information only, not legal advice. Get legal advice for your situation and complete formal director training.
The core duties in plain words
The details differ by country and legal form, but the core duties are broadly similar across Australia and New Zealand.
1. Act with care and diligence. Do the work a reasonable director in your position would do. Read the papers. Attend meetings. Ask questions. Understand the financial statements. If you have special skills, such as finance, you may be held to a higher standard in that area.
2. Act in good faith and for a proper purpose. Make decisions you honestly believe are in the best interests of the organisation as a whole, and use your powers for the reasons they were given. Do not use a board decision to favour one group, protect your own position or settle a score.
3. Do not misuse your position. Do not use your role to gain an advantage for yourself or someone else, or to cause harm to the organisation.
4. Do not misuse information. Information you receive as a director is confidential. Do not use it for personal gain, such as trading shares, or share it with your employer.
5. Do not let the organisation trade when it cannot pay its debts. In Australia, this is usually described as the duty to prevent insolvent trading. In NZ, the focus is on not allowing reckless trading and not agreeing to obligations the company cannot meet. Either way, if cash is running out, you must act.
6. Disclose your interests. If you have a personal interest in a matter before the board, declare it and follow the board’s process. Often that means leaving the room for the discussion and vote.
Other duties also apply, such as keeping proper financial records, meeting reporting duties and, in many organisations, health and safety duties for officers.
Differences between Australia and NZ
The two countries share common roots, but there are some differences worth knowing.
Different laws. Each country has its own companies law, and many other laws set duties for specific sectors.
Insolvency focus. Australia’s insolvent trading rules and NZ’s reckless trading rules are framed differently, but both require directors to watch solvency closely.
Who directors owe duties to. The core idea of acting in the best interests of the company applies in both. How that is applied in practice can differ.
Defences and protections. Both countries offer some protection for directors who act honestly, reasonably and on proper information, but the tests differ.
Health and safety. Both countries place duties on officers to take reasonable steps on health and safety, under separate laws.
If you sit on boards in both countries, or plan to, get advice on each.
What happens when duties are breached
Most directors never face a claim. But it helps to know what is at stake.
Depending on the law and the facts, a breach of duty can lead to:
Civil penalties or fines
Orders to pay compensation to the organisation or its creditors
Being banned from managing companies for a period
In the most serious cases, such as dishonesty, criminal charges
Regulators and liquidators are the most common sources of action. Shareholders, members or the organisation itself can also bring claims.
This is not meant to alarm you. It is a reminder that a board seat is a legal role, not an honorary title. Directors who do the work, ask questions and keep records are far less exposed.
Not-for-profit and charity boards
Many first board seats are with not-for-profits and charities. The duties still apply.
In Australia, the legal form matters. Companies limited by guarantee follow companies law. Incorporated associations follow state or territory laws. Registered charities also have governance standards set by the charities regulator, which include duties similar to those of company directors.
In New Zealand, incorporated societies and charitable trusts each have their own rules. Officers of incorporated societies now have duties similar to company directors, and registered charities have reporting duties to the charities regulator.
Being unpaid does not reduce your duties. See not-for-profit boards as a first seat.
How search consultants see director duties
When I worked in executive search, chairs often asked candidates about their understanding of director duties, especially for first-time directors. They were not looking for a legal lecture.
What they wanted was evidence that the candidate took the role seriously. Candidates who could explain the duties simply, give an example of asking a hard question or describe how they would handle a conflict came across well. Candidates who said, “I’d rely on management for that,” did not.
Chairs know that duties are personal. They want directors who will read the papers and speak up.
Protecting yourself
Good habits protect you more than any document.
Read every paper. Do not rely on the summary.
Ask questions and make sure they are minuted. Especially on solvency, risk and major decisions.
Get advice when needed. Legal, financial or technical advice can support your decisions.
Declare conflicts early. And keep a written register.
Check D&O insurance. Ask what it covers and what it does not.
Get a deed of access, insurance and indemnity. This gives you access to board papers after you leave and sets out insurance and indemnity terms.
Watch the cash. If you have concerns about solvency, raise them formally and seek advice quickly.
Disagree on the record. If you disagree with a decision, ask for your view to be minuted.
Training
Formal director training is one of the best investments a new director can make. It teaches duties, finance, risk, strategy and board practice in a structured way.
Both Australia and NZ have well-known director institutes offering foundation courses. Many professional bodies and universities also run governance programs. See whether a director course will help you get a board seat.
Beyond courses, keep learning through director briefings, board evaluations and conversations with experienced chairs.
Questions to ask before you join
Before you accept any board seat, ask:
What is the legal form of the organisation, and which laws apply?
What is the current cash position and forecast for the next 12 months?
Are there any legal claims, regulator issues or audit findings?
Does the organisation hold D&O insurance, and what is the cover?
Will I receive a deed of access, insurance and indemnity?
What induction and training does the board provide?
How does the board manage conflicts of interest?
Can I see the last six months of board minutes?
These questions show maturity and protect you. For more, see board role due diligence.
A quick self-check
Can you explain the six core duties in your own words?
Do you know the legal form of each board you sit on or are targeting?
Do you have a deed of access, insurance and indemnity for each current seat?
Have you completed formal director training, or booked it?
Your next step
Write the six core duties on one page in your own words. Then check each current or planned board seat against the eight questions above, and book legal advice or director training where you find gaps.
If you want help with your board CV, my board resume writing helps senior leaders show governance knowledge and director readiness clearly.
If you are preparing for your first board seat, book a complimentary Clarity Session.
