Dishonest Use of Position

The Corporations Act 2001 requires directors to carry out duties and obligations with due diligence. Directors must, at a minimum, become familiar with the fundamentals of the business, and monitor the company’s activities and finances.

The Act imposes four main duties on directors at section 180-183:

1. To exercise care and diligence. The standard is that which a reasonable person might be expected to show in the role.
2. To act in good faith and for a proper purpose. The director must act in the best interests of the company, avoid conflicts of interest, and disclose and manage them should they arise.
3. Not to improperly use their position. A director must not use their position to gain an advantage for themselves or others, to the detriment of the company.
4. Not to improperly use information. A director must not improperly use information they acquire in their role to gain an advantage for themselves or others, to the detriment of the company.

There is a range of offences which can be committed by a director, one of which is dishonest use of position.

Legislation

The offence of dishonest use of position is found at section 184 of the Act. A maximum penalty of 200 penalty units ($44,400), or 5 years imprisonment, or both, applies if a director:

• is reckless or dishonest and fails to exercise their powers and discharge their duties in good faith in the best interests of the corporation or for a proper purpose;
• uses their position, or information gained in their position, dishonestly to directly or indirectly gain an advantage for themselves or others, or cause detriment to the business.

Common ways this offence occurs

A person can find themselves facing this charge when:

• they sold, gave away or used company property for the advantage of themselves or others;
• they entered into a non-arms-length transaction with the company;
• they used the company to pay their personal bills.

What must be proven

The court must be satisfied:

• that the accused was a director, officer or employee of the company;
• that the accused used their position as a director, officer or employee;
• their use of their position was dishonest according to the standards of ordinary people.

Possible defence

This matter can sometimes be defended on the basis that the conduct is not dishonest according to the standards of an ordinary person.

If you require legal advice or representation in any legal matter, please contact Armstrong Legal.