What rights do directors have?
The right to receive documents in the
A director has a general right of access to documents in
the company’s possession in a timely manner to enable
him or her to carry out their director functions. In practice,
boards are frequently provided a broad right of access
so as to enable the director to do their job properly.
The Centro case (ASIC v Healey (2011) FCA 717) has
shown that managing the flow of information for directors
is critical – a director needs to ensure the volume of board
papers is appropriate, that key matters are highlighted and
the information is comprehensible to all directors.
There may be circumstances where external information
is not given to directors for a limited period of time – for
example, takeover offers.
The right to inspect documents and financial records
At common law, a director is entitled to inspect, and to
take copies of, the books and accounts of the company
for a proper purpose. The director may exercise that
right personally or employ a proper agent to make the
examination for him or her.
Section 198F(1) gives currently serving directors (but not
their agents) the right to inspect books, other than financial
records, at all reasonable times for the purposes of a legal
proceeding to which they are party or wish to bring against
others or believes may be brought against them.
Section 290 of the Corporations Act 2001 outlines the
right of access for a currently serving director to ‘financial
records’ (which are defined in a relatively limited way in
s 9) at all reasonable times. A director may apply for a
court order to allow another person to inspect and make
copies of the records on their behalf. The court must be
satisfied that the applicant is acting in good faith and that
the inspection is to be made for a proper purpose.
Former directors have the right to inspect books,
including financial records, for up to seven years after
ceasing to be a director. Again this only applies for the
purpose of a legal proceeding.
This period of access may be extended by the company
and its directors entering into appropriate deeds of access
(often called a deed of access and indemnity). Boulos v
Carter; Re Tarbs World TV Australia Pty Ltd (2006) 24 ACLC
46 established that a former director may request access
to bring an action on behalf of the company provided they
have standing under s 236, are acting in good faith and
obtain the leave of the court (s 237) to do so.
The explanatory memorandum to the CLERP Act which
introduced s 198F states that information can only be
used by the director for the purposes of the company, for
example, if an ex-director and the company are in litigation
with each other if may be difficult for the ex-director
to establish that access to documents are for the purposes
of the company.
If a director holds shares in the company, they also have
the rights of a shareholder. Shareholders have the right
to access the minutes of general meetings of members only
(s 251B). Members also may apply to the courts for access
to company books under s 247A.
The right to delegate
Unless the company’s constitution provides otherwise,
the directors of a company may delegate any of their
powers to anyone (s 198D). The delegation must
be recorded in the company's minute book.
If the directors delegate a power, s 190 makes the
directors responsible for the exercise of the power by
the delegate as if the power had been exercised by the
directors themselves. However, a director will not be
responsible for things under the delegation if:
- The director believed on reasonable grounds at all
times that the delegate would exercise the power in
conformity with the duties imposed on directors of
the company by the Corporations Act 2001 and the
company’s constitution (if any); and
- The director believed on reasonable grounds and
in good faith, after making proper inquiry if the
circumstances indicated the need for inquiry, that the
delegate was reliable and competent in relation to the
Delegation does not excuse a director of their duty of care
Reliance on information or advice
In legal proceedings brought claiming whether a director
has breached a duty, the director may raise a defence of
reasonable reliance on information or professional or expert
advice provided by others (s 189), which goes on to provide
that the director’s reliance on the information or advice is
taken to be reasonable unless the contrary is proved.
Essentially, the director must prove:
- the director relied on information, or professional
or expert advice, given or prepared by:
- an employee of the corporation whom the director
believed on reasonable grounds to be reliable and
competent in relation to the matters concerned; or
- a professional adviser or expert in relation to
matters that the director believed on reasonable
grounds to be within the person’s professional or
expert competence; or
- another director or officer in relation to matters
within the director’s or officer’s authority; or
- a committee of directors on which the director
did not serve in relation to matters within the
committee’s authority; and
- the reliance was made in good faith and after making
an independent assessment of the information or
advice, having regard to the director’s knowledge of the
corporation and the complexity of the structure and
operations of the corporation.
However, the courts have been firm that directors cannot
substitute reliance upon the advice of management or others
for their own attention and examination of an important
matter that falls specifically within the board’s responsibilities
– matters such financial reporting obligations (Centro case) or
statements to the markets (James Hardie cases).
The right to obtain insurance against liability
for breaches of duty in certain circumstances
This is a complex area. Directors can obtain insurance
against liability in certain circumstances but they cannot
obtain insurance for certain breaches of the Corporations
Act 2001 (or indeed some other breaches of legislation).
It is important to have appropriate directors and officers
insurance (often referred to D&O insurance), not the
least because an indemnity will be of little assistance
if the company has insufficient funds to meet a claim
by a director for indemnity.
What are some other rights?
Austin and Ramsay¹ identify other director rights:
- Lawful administration of the affairs of the company
- The right to enforce statutory provisions
- The right to enforce the corporate constitution
- Remuneration (if in a director’s terms of engagement)
- Participation in board decisions
- The right to remain in office until validly removed
How should a director gain access to documents?
Before seeking legal action to access documents,
it is suggested that a director should make approaches
to the chairman, company secretary and/or CEO.
In some instances, the company cannot refuse access
to the information.
What rights do officers have?
Officers are defined under the Corporations Act 2001
as a director or secretary of the organisation, a person
who makes or helps to make decisions that affect the
whole or a substantial part of the business or who may
significantly affect the company’s financial standing,
or receivers, administrators, liquidators and trustees.
However, the specific rights of directors referred to
above do not always extend to other officers. Therefore,
officers would need to have rights provided in a specific
agreement such as a deed of access and indemnity, as
What are deeds of access and indemnity?
On top of statutory requirements of the Corporations
Act 2001 regarding access to information, organisations
will normally offer directors deeds of access and
indemnity. The deed gives the directors access to
company documents and records should a claim ever be
made against them relating to their office. Boards should
consider including the following limitations:
- The right of access does not apply to any documents
over which the entity claims legal professional
- Whether the right of access should be limited to
a particular period after the director has ceased
service (for example, seven years);
- An undertaking by the director to keep the contents
confidential, except where they must be disclosed
in court proceedings or as required by law
1 R Austin and I Ramsay, Ford, Austin & Ramsay's Principles of Corporations Law, 16e, LexisNexis, 2014.
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