Guide
The CATSI Act gives directors five legal duties. Most directors of Aboriginal and Torres Strait Islander corporations are volunteers giving their time to their community, and the duties apply just the same. Here they are in plain words, with what each one actually asks of you.
Duty 1
“exercise your powers and discharge your duties with care and diligence”
Directors and officers
Take the role seriously. Understand what you are deciding before you decide it, ask when you do not understand, and make decisions you honestly believe are good for the corporation.
Duty 2
“carry out your role in good faith and for a proper purpose”
Directors and officers
Act for the corporation, not for yourself and not for anyone else. "Proper purpose" means using your position for what it was given to you for.
Duty 3
“not use your position or any information you get as part of your role, to get an advantage for yourself or someone else, or cause harm to the corporation”
Directors, officers and employees
What you learn as a director stays a director’s knowledge. You cannot use it to benefit yourself, your family or a friend — and this is the one duty that reaches staff as well as the board.
Duty 4
“disclose to the other directors any material personal interest that relates to the corporation's business”
Directors only
If the board is deciding something you have a material personal interest in, tell the other directors. You must then leave the meeting while it is considered, and not vote on it. Some interests are exempt, including the ordinary interest you hold in common with other members.
Duty 5
“not allow the corporation to trade if you suspect it is insolvent”
Directors only
If you think the corporation cannot pay its debts, it must stop taking on more. This is the duty that can reach a director personally, and the reason boards need to see the numbers between meetings.
Checked against ORIC — Legal duties of directors and other officers, .
Not all five stop at the boardroom door, and that surprises people. Care and diligence and good faith apply to directors and other officers. The duty not to misuse your position or information applies to directors, officers and employees. Disclosing material personal interests, and not trading while insolvent, are directors’ duties.
Everyone to whom a duty applies is personally responsible for meeting it. Being a volunteer does not change that.
In most corporations the directors are also members of the community the corporation serves. They may buy from it, work for it, or benefit from what it does. That is how the structure is meant to work.
An interest you hold in common with the other members does not have to be declared. Where you have a material personal interest in something the board is deciding, you must tell the other directors and leave the meeting while it is considered (sections 268-1 and 268-20).
Checked against CATSI Act 2006 (compilation 20 March 2024) — Division 268, .
When a director has a conflict of interestcovers what you declare, what you do not, and what a board does when too many directors are conflicted to hold a vote.
Duty 5, not letting the corporation trade while insolvent, is the one that can reach a director personally, and the hardest to meet on a board that only sees numbers once a year.
You cannot form a view about whether the corporation can pay its debts from an annual report presented eight months after year end. Boards that take this duty seriously see the position between meetings. That is a large part of what CFO support is for.
Consequences depend on the circumstances and can include action by the corporation against the person, civil penalty proceedings brought by the Registrar, disqualification from managing corporations, and in serious cases criminal prosecution.
Almost every director who ends up in difficulty got there through not knowing, not through bad faith. A board that asks questions early is in a different position from one that does not.
If your corporation has received a notice from the Registrar, start at compliance notices. If you are worried about the corporation’s position generally, that is a conversation worth having early.
Five. Care and diligence; good faith and proper purpose; not misusing your position or information; disclosing material personal interests; and not trading while insolvent.
Some of them. Care and diligence and good faith apply to directors and other officers. Not misusing your position or information applies to directors, officers and employees. Disclosing material personal interests and not trading while insolvent apply to directors only.
Yes. Every director, officer or employee to whom a duty applies is personally responsible for meeting it, whether or not they are paid. That is not meant to discourage anyone from serving; it is the reason good information and good advice matter.
Depending on the circumstances: the corporation may take action against the person, the Registrar may bring civil penalty proceedings, a person may be disqualified from managing corporations, and in serious cases there can be criminal prosecution.
Not in itself, and it is very common. An interest you hold only as a member, in common with the other members, does not have to be declared. Where there is a material personal interest, it is disclosed to the other directors, the interested director leaves the meeting while the matter is considered and does not vote on it, and the transaction is disclosed in the accounts as a related party transaction.