Director Disputes in 2025–26: Trends, Red Flags & How to Protect Yourself

Director disputes rarely erupt overnight. They build slowly, often behind closed doors, until trust collapses and
the business faces paralysis or litigation. In the current environment of higher interest rates, tighter cash flow
and increased regulatory scrutiny, we are seeing more disputes between founders and directors in Australian
companies than ever before.

This article outlines the key trends we are observing, the red flags directors should watch for, and practical steps
to protect your position before a disagreement becomes a full-blown legal dispute.

1. Breakdown of Trust Between Founders

Many companies begin as a collaboration between friends, colleagues or family members. Over time, differing risk
appetites, personal financial pressures and workload imbalances can erode trust. Common symptoms include:

• important decisions being made outside of formal board processes;
• one director “going solo” on contracts, hires or expenditure;
• informal loans or capital injections that are not properly documented; and
• disputes about who owns key intellectual property, branding or customer relationships.

Once trust breaks down, each decision is viewed through a lens of suspicion. This is usually the point at which we
first receive instructions – long after the damage has started.

2. Financial Pressure and Insolvent Trading Risk

Economic pressure is a major driver of director conflict. Where cash is tight, disagreements emerge about:

• which creditors should be prioritised;
• whether directors should continue to draw salaries or dividends; and
• whether to borrow more, cut costs or scale back operations.

At the same time, directors face potential personal exposure for insolvent trading under
section 588G of the Corporations Act 2001 (Cth). Warning signs of possible insolvency include:

• increasing ATO debt and missed payment arrangements;
• arrears in employee superannuation or wages;
• suppliers being routinely paid outside terms; and
• reliance on personal credit cards or short-term finance to keep the business afloat.

Disagreements about whether the company should “trade on” or restructure often sit at the heart of modern director
disputes.

3. Related-Party Transactions and Asset Transfers

Another flashpoint is the treatment of related-party transactions – payments or transfers between
the company and entities controlled by directors, their family members or associates. Examples include:

• management fees or consultancy charges paid to a director’s separate company;
• rent paid to a director-owned property at above-market rates;
• the transfer of valuable contracts, licences or equipment to a new entity; and
• the use of company funds to pay personal expenses.

These arrangements are heavily scrutinised in shareholder disputes, insolvent trading claims and liquidator
investigations. Even if they started out as “practical” solutions, they can be characterised as unfairly
prejudicial conduct or breaches of directors’ duties if not properly documented and approved.

4. Governance Failures and Poor Record-Keeping

In our experience, many director disputes are driven less by outright dishonesty and more by poor governance:

• no up-to-date constitution or shareholders’ agreement;
• important decisions not recorded in board minutes;
• unclear delegations of authority; and
• incomplete financial records or inconsistent reporting.

When a dispute arises, this lack of structure leaves plenty of room for competing narratives about what was agreed,
who was responsible for what and whether a director has in fact “overstepped”.

5. Excluding a Director From Information or Decision-Making

A director has a fundamental right to access company books and records and to participate in management. A major
red flag is any attempt to:

• remove a director from MYOB/Xero or banking platforms;
• exclude a director from board meetings or email circulation lists;
• change passwords or lock them out of key systems; or
• make significant decisions without notice to that director.

These steps often trigger urgent applications to the Court seeking access orders, injunctions or other protective
relief. They are also commonly relied on as evidence of oppressive conduct towards a shareholder-director.

How Directors Can Protect Themselves

There are practical steps directors can take to reduce the risk and impact of disputes:

1. Get the Documents in Order

Ensure you have copies of – and understand – the company’s constitution, any
shareholders’ agreement and key finance or supply contracts. If these documents do not reflect the
way the business actually operates, they may need to be updated.

2. Improve Governance

Put in place clear processes for:

• board meetings and decision-making;
• delegations of authority and spending limits; and
• approval of related-party arrangements.

Good governance does not have to be bureaucratic. In fact, simple, well-designed structures reduce confusion and
conflict.

3. Keep Proper Records

Ensure that board minutes accurately record key decisions and the reasons for them. Maintain
complete and up-to-date financial records. If the company is approaching financial difficulty, make sure the steps
taken by the board are carefully documented.

4. Be Cautious With Related-Party Dealings

If you or your associates provide services, premises or funding to the company, make sure the arrangements are:

• documented in writing;
• commercially justifiable; and
• disclosed to and approved by the board (and shareholders, where required).

What feels like a practical solution today can be painted as self-interest tomorrow if there is no paper trail.

5. Seek Early Legal Advice

The earlier you obtain advice, the more options you are likely to have. Strategic intervention at the “tension”
stage can often resolve issues through negotiation, mediation or governance changes – without the cost and
disruption of full-scale litigation.

Conclusion

Director disputes are becoming more common, more complex and more personal. Economic pressure, related-party
transactions and poor governance often create a combustible mix. However, with the right structures and early
advice, many disputes can be managed or resolved before they threaten the future of the business.

If you are concerned about the direction of your company, feel that you are being sidelined, or are worried about
potential personal exposure, it is important to obtain clear, independent advice on your position.

Need Advice on a Director Dispute?

Boss Lawyers acts for directors, shareholders and companies in complex disputes across Australia, including
director misconduct claims, oppression proceedings and governance disputes.

For a confidential discussion about your situation, contact us on
(07) 3188 0200 or visit our Contact Us page.