Breach of Director Duties in Queensland: Consequences, Penalties and What Directors Must Do

Breaching a director duty under the Corporations Act 2001 (Cth) can result in civil penalties up to $1.82 million per contravention, criminal liability, disqualification from managing corporations, and personal liability for company debts. If you have received a demand letter, an ASIC examination notice, or a letter from a liquidator, the exposure is real and the window to act is short. This article explains what the law requires, what the consequences are, and what directors in Queensland must do right now.

The Four Core Director Duties Under the Corporations Act

The Corporations Act 2001 (Cth) imposes four core duties on every director of an Australian company, regardless of the company’s size, structure, or industry. These are federal laws that apply equally in Queensland and every other state and territory.

Section 180, Duty of Care and Diligence

A director must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person in their position would exercise. This is a civil penalty provision, it does not require dishonesty. A director who fails to read financial reports, attend board meetings, or seek advice before making a major decision may breach s 180 even if they acted in good faith.

Section 181, Duty of Good Faith

A director must act in good faith in the best interests of the corporation and for a proper purpose. Self dealing, conflicts of interest, and decisions made to benefit a related party rather than the company itself all risk breaching s 181. This is also a civil penalty provision.

Section 182, Improper Use of Position

A director must not improperly use their position to gain an advantage for themselves or someone else, or to cause detriment to the corporation. This section catches a wide range of conduct including diverting corporate opportunities, awarding contracts to related parties, and misusing company resources. It is both a civil penalty provision and, when the conduct is dishonest, a criminal offence under s 184.

Section 183, Improper Use of Information

A director must not improperly use information obtained in their role to gain an advantage for themselves or someone else, or to cause detriment to the corporation. This obligation survives the end of the director’s appointment, it continues to apply after resignation or removal.

Section 184, Criminal Liability

Section 184 elevates breaches of s 181, s 182, and s 183 to criminal offences where the director acted recklessly or dishonestly. Recklessness does not require a deliberate intention to harm, it is enough that the director was aware of a substantial risk and proceeded regardless. The criminal penalties for s 184 are set out in Schedule 3 of the Corporations Act and include imprisonment of up to 15 years.

Four Consequences of Breaching Director Duties in Queensland

A breach of director duties does not result in a single consequence. Depending on the nature of the breach and the circumstances of the company, a director may face several overlapping forms of liability simultaneously. The following four consequences are the most significant.

1. Personal Liability for Company Debts, Insolvent Trading (s 588G)

The insolvent trading provisions under s 588G of the Corporations Act impose personal liability on a director who allows a company to incur a debt when the company is insolvent, or when incurring the debt would make the company insolvent, and the director was aware or ought to have been aware of that fact.

The exposure is not capped. A director who allows a company to trade while insolvent for six months before a liquidator is appointed may be personally liable for every dollar of debt incurred during that period. In practice, liquidators frequently issue demands for hundreds of thousands or even millions of dollars under s 588M, backed by compensation orders sought in the Federal Court or state courts.

The key elements a liquidator must establish are:

• The company incurred a debt at a particular time
• The company was insolvent at that time, or became insolvent by incurring the debt
• At that time, there were reasonable grounds for suspecting insolvency
• The director was aware of those grounds or a reasonable person in their position would have been aware
• The director failed to prevent the company from incurring the debt

Queensland directors receiving a liquidator’s letter of demand should not ignore it or assume the claim will not be pursued. Modern liquidators are well resourced, increasingly use litigation funders, and the courts take insolvent trading seriously. For detailed analysis of this exposure, see our article on insolvent trading advice for Queensland directors.

If you are also facing ATO debts, our Brisbane insolvency lawyers regularly advise directors on managing overlapping ATO and liquidator claims.

2. Civil Penalties, ASIC Enforcement Under s 1317G

ASIC has standing to apply to the Federal Court for a pecuniary penalty order against a director who has contravened a civil penalty provision of the Corporations Act. Under s 1317G, the court may order a director to pay a civil penalty where the contravention materially prejudiced the interests of the company or its members, materially prejudiced the company’s ability to pay its creditors, or was otherwise serious.

The current maximum civil penalty for an individual is the greater of:

• 5,000 penalty units = $1.82 million (at $364 per unit, effective from 1 July 2026); or
• three times the benefit obtained and detriment avoided

These amounts reflect the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019, which tripled the maximum civil penalties from 13 March 2019. ASIC has used these increased powers actively. In the 2024 to 2025 financial year alone, ASIC secured $349.8 million in civil penalties across enforcement actions.

Civil penalties are imposed per contravention, not per proceeding. A director who breached s 181 and s 182 in connection with multiple transactions may face separate penalty orders for each contravention, resulting in a cumulative liability that far exceeds the per contravention maximum.

3. Criminal Liability, Section 184 and Imprisonment Up to 15 Years

Where a director’s breach of s 181, s 182, or s 183 was dishonest or reckless, ASIC may refer the matter to the Commonwealth Director of Public Prosecutions (CDPP) for criminal prosecution under s 184.

The penalties for criminal offences under s 184 are set by Schedule 3 to the Corporations Act:

• Subsection 184(1) (good faith, dishonest): up to 15 years imprisonment
• Subsection 184(2) (use of position, dishonest): up to 15 years imprisonment
• Subsection 184(3) (use of information, dishonest): up to 15 years imprisonment

These maximum penalties were increased from five years to 15 years by the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019, commencing 13 March 2019. The increase was deliberate, Parliament intended that dishonest conduct by corporate officers should be treated as seriously as other major criminal offences.

The standard of proof for criminal liability is beyond reasonable doubt. The prosecution must establish that the director acted dishonestly, that is, knowingly or recklessly. Recklessness is defined in s 5.4 of the Criminal Code Act 1995 (Cth) as awareness of a substantial risk that the circumstance or result exists or will occur, and proceeding regardless when it is unjustifiable to do so.

Criminal proceedings can be brought alongside civil proceedings. A director may be simultaneously defending an ASIC civil penalty application and a CDPP criminal prosecution arising from the same conduct.

4. Disqualification From Managing Corporations, s 206C, s 206E and s 206F

A director who breaches their duties may be disqualified from managing corporations, meaning they cannot act as a director, secretary, or person involved in management of any company in Australia.

Court ordered disqualification (s 206C and s 206E): Following a successful civil penalty application under s 1317E, the court may order disqualification for such period as it considers appropriate, including permanently. Permanent disqualification has been ordered in cases involving serious or repeated misconduct.

Administrative disqualification by ASIC (s 206F): ASIC can disqualify a director for up to five years without a court order if:

• The director was an officer of two or more companies that went into external administration within seven years; and
• ASIC is satisfied that the disqualification is justified, having regard to the director’s conduct and the circumstances of the company failures

ASIC exercises this power with increasing frequency. In 2025 to 2026, ASIC disqualified 36 directors from managing corporations, many through the administrative pathway. For a detailed breakdown of ASIC’s enforcement activity, see our article on ASIC’s disqualification of 36 directors in 2025 to 2026.

A disqualification order has immediate and severe practical consequences. The director cannot serve as an officer of any company in Australia, cannot participate in management decisions even informally, and may face criminal penalties under s 206A if they act as a director while disqualified.

When ASIC Investigates a Director

ASIC investigations into directors are typically triggered by one or more of the following events:

• Company administration or liquidation: The external administrator or liquidator files an ASIC Form 524 report, which must include an assessment of whether any director’s conduct should be further investigated.
• ASIC’s own surveillance: ASIC monitors media, court proceedings, and ASX announcements for indicators of misconduct.
• Complaints from creditors, shareholders, or employees: ASIC receives thousands of complaints per year; serious complaints involving potential misconduct are assessed for investigation.
• Referrals from other regulators: The ATO, Australian Financial Security Authority (AFSA), and state-based regulators can refer matters to ASIC.
• ATO data matching: ASIC and the ATO share data, particularly in relation to director penalty notices and unpaid superannuation.

ASIC’s Investigation Powers

Once ASIC decides to investigate, it has extensive compulsory powers:

Section 19 examination: ASIC can require a person to appear before an ASIC examiner and answer questions under oath. The examination is private and the answers cannot generally be used in evidence in criminal proceedings against the person being examined (subject to limited exceptions). A director summoned to a s 19 examination must attend and answer questions, refusal is a criminal offence. The right to silence does not apply in the same way it does in a police interview.

Section 30, compulsory production: ASIC can require a person to produce books and records. Non-compliance is a criminal offence. In practice, ASIC issues s 30 notices before or at the same time as s 19 examination notices.

Search warrants: ASIC can apply for and execute search warrants on business premises and private residences.

Freezing orders: ASIC can apply to the Federal Court for freezing orders to preserve assets pending civil penalty or compensation proceedings.

A director under ASIC investigation should retain experienced commercial litigation solicitors before attending any examination or producing any documents. What you say and produce during the investigation significantly shapes the proceedings that follow.

What to Do If You Have Been Accused of Breaching Your Director Duties

If you have received a letter of demand from a liquidator, an ASIC examination notice, or notification that ASIC is investigating you, your response in the first days and weeks matters enormously. The following five steps are critical.

Step 1, Get Legal Advice Immediately

Do not respond to ASIC, the liquidator, or any other party without first obtaining legal advice from solicitors who practise in director liability and commercial litigation. The initial response, whether it is attending an examination, producing documents, or responding to a demand, can either protect your position or significantly worsen it. Time limits apply: ASIC examination notices specify a date and time for attendance; liquidator demands often include time sensitive deadlines.

Step 2, Preserve All Documents

Do not delete emails, messages, or documents once you become aware of an investigation or claim. Destroying evidence after you have notice of a claim is a serious criminal offence and will be treated by the court as consciousness of guilt. Preserve your personal and company emails, board minutes, financial reports, advice from accountants and lawyers, and any communications with other directors.

Step 3, Understand the Precise Nature of the Claim

The legal basis of the claim, whether it is an insolvent trading action under s 588G, a civil penalty application under s 1317E, a criminal referral under s 184, or a combination, determines the defences available to you, the standard of proof the other side must meet, and the relief that can be granted against you. Different claims require materially different responses and strategies.

Step 4, Identify Available Defences Early

Director duty claims are not automatically successful. Many have been defended, reduced, or settled on favourable terms where the director obtained early advice and assembled the right evidence. The main defences are examined in detail in the following section.

Step 5, Engage Proactively, Not Reactively

Directors who ignore letters of demand or ASIC notices, or who engage only minimally, almost always end up in a worse position than directors who engage promptly and proactively through their solicitors. Creditors, liquidators, and ASIC all have discretion about how aggressively to pursue a matter, and a director who demonstrates good faith, retains records, and cooperates appropriately is in a better position to negotiate or defend than one who stonewalls.

Defences Available to Directors in Queensland

Directors accused of breaching their duties are not without options. The Corporations Act provides several recognised defences, and the courts have consistently held that directors who made genuine, informed, good-faith decisions should not be personally liable for outcomes that turned out badly.

The Business Judgment Rule, Section 180(2)

The business judgment rule provides a defence specifically to a breach of the duty of care and diligence under s 180(1). A director satisfies the rule, and is taken to have met their s 180(1) duty, where they:

• made a business judgment in good faith for a proper purpose;
• did not have a material personal interest in the subject matter of the judgment;
• informed themselves about the subject matter to the extent they reasonably believed was appropriate; and
• rationally believed the judgment was in the best interests of the corporation.

The business judgment rule does not apply to breaches of s 181, s 182, or s 183. It protects honest, informed decisions that turned out badly, it does not protect self-dealing, conflicts of interest, or decisions made for an improper purpose.

Safe Harbour, Section 588GA (Insolvent Trading)

Section 588GA introduced a safe harbour from insolvent trading liability for directors who, from the time they suspect insolvency, take a course of action that is reasonably likely to lead to a better outcome for the company than immediate administration or liquidation. The safe harbour covers debts incurred directly in connection with that course of action.

To access safe harbour, a director must at the relevant time:

• be taking advice from appropriately qualified advisers (typically a restructuring practitioner or experienced insolvency lawyer);
• be keeping adequate books and records;
• be paying employee entitlements as they fall due; and
• be cooperating with any restructuring professional they have engaged.

Safe harbour does not apply if the director engaged in dishonest conduct, if the debt was incurred to pay a director’s own remuneration, or if the director fails to satisfy the conditions listed above. It is not a licence to trade recklessly, it is a defence for directors who are actively trying to save a business through legitimate restructuring.

Reliance on Advisers, Section 189 and Section 190

Under s 189, a director is entitled to rely on information or advice provided by an employee, professional adviser, or expert if the reliance is reasonable and the director made independent assessment of the advice where this was reasonable in the circumstances. Under s 190, a director who delegates a power to another person in good faith is not responsible for the act or omission of that person if the delegation was proper and the director had reasonable grounds to believe the delegate would exercise the power appropriately.

Reliance on advisers is a partial defence, not an absolute one. A director who ignores red flags, fails to ask basic questions, or relies on advice they know or ought to know is wrong cannot use s 189 to escape liability.

Honest and Reasonable Reliance

Courts have discretion under s 1317S to relieve a director from liability for a civil penalty contravention if the director acted honestly and, having regard to all the circumstances, ought fairly to be excused. This is a judicial discretion, not a strict defence, it requires the court to weigh the director’s conduct, the consequences of the breach, and the circumstances as a whole.

How Boss Lawyers Can Help Directors Facing Duty Breach Claims in Queensland

At Boss Lawyers, we act for directors in Queensland who are facing claims arising from alleged breaches of director duties. Our team has extensive experience in director disputes, commercial litigation, and insolvency-related director liability, including:

• Responding to ASIC examination notices and compulsory production orders
• Defending insolvent trading claims brought by liquidators under s 588M
• Representing directors in Federal Court civil penalty proceedings
• Advising on safe harbour strategies for directors of companies in financial difficulty
• Negotiating with liquidators and creditors to resolve claims without litigation
• Advising directors on disqualification risk and ASIC administrative proceedings

We are based in Brisbane and act for clients across Queensland and nationally. If you are a director who has received a letter of demand, an ASIC notice, or a creditor’s claim, call us on 1300 267 711 or contact our director disputes team for a confidential discussion about your situation.

Our insolvency lawyers in Brisbane also advise directors on overlapping ATO director penalty notice exposure, voluntary administration, and safe harbour restructuring.

Frequently Asked Questions

What are the consequences of breaching director duties in Queensland?

Breaching director duties under the Corporations Act 2001 (Cth) can result in civil penalties of up to $1.82 million per contravention, personal liability for company debts (including insolvent trading claims under s 588G), criminal prosecution with imprisonment of up to 15 years for dishonest conduct under s 184, and disqualification from managing corporations under s 206C or s 206E. ASIC has broad investigative powers and actively pursues enforcement action against directors who fail their duties.

Can ASIC disqualify a director without going to court?

Yes. Under s 206F of the Corporations Act, ASIC can administratively disqualify a director for up to five years if the director was an officer of two or more companies that failed within a seven year period and ASIC is satisfied the disqualification is justified. This is separate from court ordered disqualification under s 206C and s 206E, which can result in permanent disqualification for serious misconduct.

What is the business judgment rule and how does it protect directors?

The business judgment rule under s 180(2) of the Corporations Act provides a defence to a breach of the duty of care and diligence. A director satisfies the rule if they made the decision in good faith for a proper purpose, did not have a material personal interest in the outcome, informed themselves to the extent they reasonably believed was appropriate, and rationally believed the decision was in the company’s best interests. The rule protects honest decisions that turn out badly, but does not protect reckless or self interested conduct.

What is safe harbour protection for insolvent trading?

Section 588GA of the Corporations Act introduced a safe harbour from insolvent trading liability for directors who, when they suspect insolvency, take a course of action reasonably likely to lead to a better outcome for the company than immediate administration or liquidation. To rely on safe harbour, directors must be taking advice from appropriately qualified advisers, keeping proper books and records, paying employee entitlements on time, and cooperating with any restructuring professional engaged. Safe harbour does not apply if the conduct was dishonest.

How long does an ASIC investigation into a director take?

ASIC investigations vary significantly in length. A focused investigation into a director’s conduct following a company collapse might conclude within 12 to 18 months, but complex matters involving multiple directors, large creditor losses, or criminal conduct referrals to the Commonwealth Director of Public Prosecutions can take several years. Directors under investigation should obtain legal representation early, as the investigation phase significantly shapes the litigation that follows.

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Disclaimer: This article is general information only and does not constitute legal advice. Director duty law is complex and fact-specific. If you are facing a claim, investigation, or demand relating to your conduct as a director, you should obtain advice from a qualified solicitor before taking any action. Boss Lawyers Pty Ltd is not liable for any action taken or not taken in reliance on this article. For legal advice specific to your circumstances, contact our office on 1300 267 711.

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