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Being a company director is both exciting and daunting. Being the ‘mind’ of the company comes with a lot of responsibility, so it can be overwhelming to keep track of exactly what your duties are as a company director in 2025.
We often hear from directors who are concerned about their potential personal liability for the debts of their company-wondering whether they could lose their house or other assets if the company runs into financial trouble. It’s more important than ever to understand your legal protections alongside your responsibilities.
But don’t worry. There are plenty of ways to manage these risks right from the planning stages so you can focus on your company’s success. For further guidance on setting up a resilient business structure, check out our insights on business structure matters and related topics.
Before we discuss the liabilities of directors in 2025, it’s important to understand the key set of established directors’ duties under current law.
What Duties Do I Owe As A Director?
Under the Corporations Act 2001 (as amended to reflect 2025 standards), directors have the following primary duties:
- To act with due care and diligence
- To act in good faith in the best interests of the company
- Not to improperly use your position
- Not to improperly use information for personal gain
In addition to these main duties, directors must also ensure they do not trade while the company is insolvent and must make the proper disclosure of personal interests where relevant. It is imperative to keep yourself informed – if there is an area where your knowledge is lacking, it becomes your duty to investigate, seek professional advice, and take appropriate steps. We’ve detailed these obligations further here.
Essentially, you need to be proactive in ensuring that the company doesn’t encounter avoidable legal or financial issues; otherwise, you may end up being personally liable.
So, how serious is this liability?
What Is Limited Liability?
Liability is when you’re held responsible for certain actions, which can often involve having to pay compensation or facing restrictions on your ability to serve as a director in the future. This is certainly something no director wants to experience, which is why liability considerations are part of the strategic planning process from the outset.
Limited liability basically means that if your company runs into trouble, you-as a director-are generally only liable for the amount you have invested in the company. This is achieved by setting up your business as a separate legal person, which allows the company to owe and repay debts much like an individual would. Consequently, under a limited liability structure, your personal assets are typically protected.
Usually, a company director will not be personally liable for company debts or losses because of this limited liability shield. However, personal liability can still arise if:
- There are any unpaid tax obligations
- Personal guarantees have been provided for company loans (i.e. if the business cannot repay, and you have agreed to cover the debt personally)
- The company was trading while insolvent
- Fraud has been committed
In addition, any breach of your directors’ duties can also result in personal liability. Given the high standard to which directors are held-and that these obligations can persist even after the company has been deregistered-it’s essential to remain vigilant.
Can They Come After My House?
If you are a company director protected by limited liability, the general answer is no-your home cannot typically be seized to satisfy company debts. However, if you have:
- Provided a personal guarantee for a loan, thereby agreeing to repay it from your own funds
- Offered security over your house or other personal assets to a bank
- Accumulated unpaid PAYG tax or superannuation obligations
- Engaged in insolvent trading
The Australian Securities and Investments Commission (ASIC) provides further information about company directors’ liabilities here, and our website also offers additional resources on regulatory compliance for directors.
Can I Still Be Liable If I’ve Resigned As A Director?
Liabilities incurred by directors may persist even after the company has ceased operations or been deregistered by ASIC. Should any breaches occur after your resignation, regulators will look closely at the circumstances, and you could still be held accountable for actions taken while in office.
It’s important to note that fiduciary duties continue to survive after resignation. Staying vigilant and ensuring that any outstanding responsibilities are addressed is always a prudent strategy.
How Can I Reduce These Risks of Liability?
If you’re new to being a company director in 2025, the prospect of personal liability may seem daunting. Fortunately, there are effective steps you can take to manage these risks so you can focus on steering your company towards success.
Insurance
Given the inherent risks, it is wise to secure Directors and Officers (D&O) Insurance. This form of insurance can protect you from personal financial losses if you are found to have acted negligently (excluding intentional or illegal conduct). For more advice on protecting your role, you might also find our resources on employment law insightful.
Deed of Indemnity
As highlighted earlier, personal liability can nevertheless occur in certain scenarios. To help mitigate these risks, a Deed of Indemnity can be a valuable tool. This legal document provides a contractual agreement between you and your company specifying the extent of indemnity available if any breaches of duty occur.
Typically, a Deed of Indemnity will outline details such as:
- The scope of protection and the extent to which costs will be covered
- The applicability of your D&O Insurance
- Access to important company documents for compliance purposes
In essence, this deed can shield you from some of the financial repercussions of any breach in your directors’ duties, though its terms may vary from company to company.
Managing Your Finances
A critical aspect of reducing personal liability is ensuring that your company’s finances are managed effectively. As a director, you are ultimately responsible for overseeing the company’s financial health and safeguarding against insolvent trading-a breach that can result in personal liability.
Even if your business is performing well, it is vital to remain engaged in financial matters and ensure that comprehensive record-keeping practices are followed. Regularly reviewing financial statements, deeds, and minutes of meetings is key. For extra support, you may wish to explore our guide on Business Structure & Corporate Governance in 2025, which offers further insights specific to today’s regulatory environment.
Directors are also advised to stay informed about any changes to legislation and best practice standards. Utilizing modern compliance software and consulting regularly with legal professionals can help protect you from unexpected liabilities.
Next Steps
Being a company director is an exciting milestone in the business world, but the legal responsibilities involved can be formidable. In 2025, staying up to date with regulatory changes and proactively managing your liabilities is more important than ever. Whether it’s through securing D&O Insurance, entering into a robust Deed of Indemnity, or simply keeping a close eye on your company’s financial affairs, these steps can significantly reduce your risks.
Sprintlaw is here to help guide you through these complexities. Our team of experienced lawyers is ready to provide tailored advice and assist with everything from compliance reviews to crafting bespoke legal agreements. For a free chat about your business journey, contact us at team@sprintlaw.com.au or call us on 1800 730 617.
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