Legal Remedies for Misuse of Power by Directors

Directors hold significant legal power over a company. They control finances, set strategy, bind the company to contracts, and make decisions that affect every shareholder and creditor. When that power is misused, the consequences are severe, and the law provides real remedies.

This guide explains the legal remedies available when a director misuses their position, the sections of the Corporations Act 2001 (Cth) that apply, and what shareholders and companies can do to protect themselves.

What Are Director Duties Under Australian Law?

Before examining the remedies, it helps to understand what directors are required to do. The Corporations Act 2001 (Cth) imposes four core duties on every director of an Australian company:

• s 180 — Care and Diligence: Act with the degree of care and diligence that a reasonable person in that position would exercise.
• s 181 — Good Faith: Act in good faith in the best interests of the corporation and for a proper purpose.
• s 182 — Use of Position: Do not improperly use your position to gain an advantage for yourself or someone else, or to cause detriment to the corporation.
• s 183 — Use of Information: Do not improperly use information obtained through your position to gain advantage or cause detriment.

Section 184 goes further: where a breach of ss 182 or 183 is intentional or reckless, it becomes a criminal offence carrying up to 15 years imprisonment and fines up to $1.565 million for individuals.

In addition to statutory duties, directors owe fiduciary duties at common law: the duty to act in the company’s best interests and the duty to avoid conflicts of interest.

Common Forms of Director Misconduct

In our experience at Boss Lawyers, director misconduct typically takes one of four forms:

• Conflict of Interest: A director steers company contracts or opportunities to a related party, often a business they control or a family member’s enterprise, without proper board disclosure or approval.
• Misappropriation of Company Assets: Unauthorised use of company funds, property, or information for personal benefit. This includes inflated director salaries, fictitious invoices, and diverting clients to a competing business.
• Oppressive Conduct: Actions that unfairly prejudice minority shareholders, such as diluting their shareholding by issuing new shares to the majority director, paying excessive dividends only to certain shareholders, or excluding a co-owner from the business entirely.
• Neglect of Duties: Failing to exercise proper oversight, leading to undetected fraud, improper financial management, or breach of regulatory obligations.

Legal Remedies for Misuse of Director Power

1. Oppression Remedy (s 232 Corporations Act)

The oppression remedy is the primary tool for minority shareholders. Under s 232, the court can intervene where the conduct of a company’s affairs, or an act of a director, is:

• Contrary to the interests of members as a whole, or
• Oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member or members.

The court’s powers under s 233 are very broad. The most common orders are:

• Buyout order: The majority shareholder is ordered to buy the minority’s shares at fair market value. Critically, courts generally do not apply a minority discount in oppression cases.
• Winding up: In the most serious cases, the court orders the company wound up.
• Restraint of conduct: Orders preventing the director from continuing the oppressive behaviour.
• Regulation of the company’s affairs: Structural orders, such as requiring a casting vote mechanism or independent chair.

2. Injunctions (s 1324 Corporations Act)

Where a director is engaged in, or is about to engage in, conduct that breaches the Act, the court can issue an injunction to stop it. This is a fast remedy. In urgent cases, an interlocutory injunction can be obtained within 24-48 hours to:

• Freeze company bank accounts to prevent dissipation of assets
• Restore access to company premises or records for an excluded director
• Prevent completion of a transaction that would harm the company
• Preserve the status quo while the dispute is litigated

3. Compensation Orders (s 1317H Corporations Act)

If a director has caused financial loss to the company through breach of their duties, s 1317H allows the court to order the director to compensate the company for the loss. This is available for breaches of the civil penalty provisions in ss 180-183.

4. Civil Penalties

Breaches of ss 180-183 are civil penalty provisions. ASIC can apply to the court for an order that the director pay a civil penalty. As of 1 July 2026, the maximum civil penalty for an individual is $1.565 million (based on the updated Commonwealth penalty unit of $364). Directors can also be disqualified from managing corporations under ss 206C or 206D.

5. Criminal Charges (s 184)

Where a breach of ss 182 or 183 is intentional or involves recklessness — for example, a director deliberately diverts company funds to a related entity knowing it will damage the company — this is a criminal offence under s 184. The maximum penalty is 15 years imprisonment and significant fines. In ASIC’s FY2025-26 enforcement year, 11 directors received custodial sentences for similar conduct.

What Should Shareholders Do?

If you believe a director is misusing their position, the steps you take in the first 72 hours matter significantly:

1. Preserve evidence immediately. Save emails, messages, financial records, and documents while you still have access. Evidence is frequently destroyed or concealed once a director knows they are under scrutiny.
2. Do not retaliate or act unilaterally. Acting impulsively, including attempting to lock the other party out or removing their access to systems, can undermine your legal position.
3. Document the conduct. Keep a contemporaneous record of every incident, with dates, what was said or done, and who was present.
4. Do not sign anything. If the other party is offering a settlement or buyout, do not accept it without independent legal advice. Initial offers are almost always below fair value.
5. Get legal advice urgently. The remedies available to you are more powerful the sooner you act. Limitation periods apply. Once assets are dissipated, recovery becomes significantly harder.

How to Protect Your Company Against Director Misconduct

Prevention is significantly cheaper than litigation. The most effective structural protections are:

• Shareholders Agreement: A well-drafted shareholders agreement sets out what directors can and cannot do, how disputes are resolved, and exit mechanisms. It is the single most important document for any company with multiple shareholders or directors.
• Conflict of Interest Policy: Directors must declare all interests and abstain from decisions where they have a personal stake.
• Board Oversight Mechanisms: Separate the CFO/financial oversight role from operational directors. Require dual signatures on transactions above a threshold.
• Regular Independent Audits: Periodic audits by external accountants detect irregularities before they become material.
• Robust Constitution: Your company constitution can include enhanced protections for minority shareholders, including drag-along and tag-along rights, pre-emption rights on share transfers, and supermajority requirements for key decisions.

Frequently Asked Questions

Can a minority shareholder take action against a director without majority support?

Yes. The oppression remedy under s 232 of the Corporations Act is available to any member, regardless of their shareholding. You do not need majority support. The court assesses whether the director’s conduct was unfairly prejudicial to you as a member.

How quickly can the court respond to urgent director misconduct?

Urgently. In genuine cases where assets are at risk or the harm is ongoing, the Queensland Supreme Court can grant interlocutory injunctions within 24-48 hours of the application being filed. The court understands that delay equals damage in corporate disputes.

What is the difference between a civil penalty and a criminal charge for director misconduct?

Civil penalties are imposed by ASIC via court proceedings and result in financial penalties and potential disqualification. Criminal charges (under s 184) require proof of dishonesty or intentional recklessness and can result in imprisonment. Both can arise from the same conduct.

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If you suspect a director is misusing their position, Boss Lawyers can assess your situation and advise on the most appropriate remedy. For urgent matters, we can move quickly. Contact our director dispute lawyers Brisbane on 1300 267 711.

If your company is facing financial difficulties or insolvency risk, Boss Lawyers’ insolvency lawyers Brisbane can advise on your legal obligations and the options available to directors, creditors, and shareholders.

If you are dealing with a shareholder dispute, Boss Lawyers’ shareholder dispute lawyers Brisbane can advise on your rights and options under the Corporations Act and the courts of Queensland.

This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances.