Directors Duties Claims

Directors Duties Lawyer Sydney: Claims, Defences and Insolvent Trading

Directors' duties claims allege that a director failed to act with care and diligence, in good faith, or for a proper purpose, or misused their position or information, or allowed the company to trade while insolvent. They can be brought by the company, by a liquidator, or by ASIC as civil penalty proceedings, and the most serious conduct is a crime. A directors duties lawyer in Sydney can assess the claim, the available defences and your personal exposure.

Reviewed by Sam Saadat, Principal Lawyer, Invictus Legal. Last reviewed: 7 October 2026

Invictus Legal acts for directors, companies, shareholders and liquidators in directors' duties disputes under the Corporations Act 2001 (Cth). These cases are heard in the Supreme Court of NSW and the Federal Court of Australia, which both have jurisdiction in civil matters under the Act (s 1337B). We focus on practical outcomes: early strategy, a credible defence and commercial settlement where it makes sense.

What are a director's main duties?

The core statutory duties are in Part 2D.1 of the Corporations Act:

• Care and diligence (s 180(1)). Directors and officers must act with the care and diligence a reasonable person would exercise in the company's circumstances and in the same role.

• Good faith and proper purpose (s 181). Directors must act in good faith in the best interests of the corporation and for a proper purpose.

• Improper use of position (s 182). Directors, officers and employees must not improperly use their position to gain an advantage for themselves or someone else, or to cause detriment to the corporation.

• Improper use of information (s 183). The same prohibition applies to information obtained through the role, and it continues after the person leaves.

Each of these is a civil penalty provision. A person "involved in" a contravention of ss 181-183 also contravenes the section.

What is the business judgment rule?

The business judgment rule in s 180(2) protects directors who make a genuine business decision in the proper way. A director is taken to have met the s 180(1) duty, and the equivalent duties at common law and in equity, if they made the judgment in good faith for a proper purpose, had no material personal interest, informed themselves to the extent they reasonably believed appropriate, and rationally believed it was in the company's best interests. The rule protects business decisions only. It does not apply to the other duties in the Act, including insolvent trading.

When is a breach of directors' duties a crime?

Under s 184, it is a criminal offence to fail to act in good faith or for a proper purpose while being reckless or dishonest, or to use one's position or information dishonestly to gain an advantage or cause detriment. Criminal charges are prosecuted separately from civil claims. If you are under investigation, get advice before you answer any questions.

What is insolvent trading and how does safe harbour work?

A director contravenes s 588G(2) if the company incurs a debt while insolvent, or becomes insolvent by incurring it, and there were reasonable grounds to suspect insolvency that the director knew of or a reasonable director would have known of. The safe harbour in s 588GA switches off s 588G(2) for debts incurred in connection with a course of action reasonably likely to lead to a better outcome for the company than immediate administration or liquidation. It is not available if the company is not paying employee entitlements or keeping up with its tax lodgements, subject to limited exceptions (s 588GA(4)). Statutory defences include reasonable grounds to expect solvency, absence from management through illness or another good reason, and taking all reasonable steps to prevent the debt (s 588H).

Who can bring a directors' duties claim?

Several parties can bring a claim:

• The company can seek a compensation order for breach of a civil penalty provision (ss 1317H, 1317J(2)) or sue for breach of duty at general law. Shareholders and officers can sue on the company's behalf with the court's leave (s 236). See our shareholder and partnership disputes page.

• A liquidator can recover from a director, as a debt due to the company, the loss creditors suffered from insolvent trading (s 588M(2)). A creditor can sue only with the liquidator's written consent (s 588R). Proceedings must start within 6 years after the winding up begins (s 588M(4)).

• ASIC can seek declarations, pecuniary penalties and compensation orders (s 1317J(1); s 1317G), and can apply to have a director disqualified from managing corporations (s 206C).

Defending liquidator claims and claims after a DOCA

We defend directors against liquidator demands and proceedings for insolvent trading, breach of duty and related recovery claims. Typical issues are the date of insolvency, the s 588H defences, safe harbour, and the actual amount of creditor loss. Where a company enters a deed of company arrangement instead of liquidation, the position is different. The deed binds creditors for claims arising on or before the date the deed specifies (s 444D). An insolvent trading compensation claim under s 588M also requires that the company is being wound up. The terms of the deed and whether liquidation follows can therefore decide whether a claim can be brought at all. If a director has also given personal guarantees, see our page on independent legal advice for guarantors.

What does it cost?

Cost is driven by the size of the claim, the volume of financial records, whether expert accounting evidence is needed, and whether the matter settles early. Fees for commercial matters are determined by the scope of work involved, and we issue a costs agreement before we commence any work, so you have full transparency from the start.

Frequently asked questions

Can a liquidator sue a director personally?

Yes. If a director contravened the insolvent trading duty, the liquidator can recover from the director, as a debt due to the company, the loss that unsecured creditors suffered (s 588M(2)). Proceedings must start within 6 years after the winding up begins (s 588M(4)).

What defences are available to an insolvent trading claim?

Section 588H provides defences where the director had reasonable grounds to expect, and did expect, that the company was solvent, did not take part in management because of illness or another good reason, or took all reasonable steps to prevent the debt. The safe harbour in s 588GA may also apply.

Does the business judgment rule protect directors from all claims?

No. Section 180(2) applies only to the duty of care and diligence in s 180 and its equivalent general law duties. It does not protect against claims under other provisions, such as insolvent trading or misuse of position.

Can ASIC ban a director?

Yes. If a court declares that a person has contravened a corporation civil penalty provision, ASIC can apply for an order disqualifying them from managing corporations for the period the court considers appropriate (s 206C). ASIC can also seek pecuniary penalties and compensation orders.

Can a shareholder sue a director for breach of duty?

A shareholder can bring proceedings on behalf of the company with the court's leave under s 236 and s 237. Any recovery generally goes to the company, not directly to the shareholder.

Speak to a directors duties lawyer in Sydney

Call Invictus Legal on 02 8553 0500 or book online. If assets are at risk and a freezing order may be needed, call 0410 600 230. Visit our commercial law hub for related services.

This page is general information only and is not legal advice. Contact Invictus Legal to discuss your situation.