Directors’ duties and personal liability: where the line is

A company is a separate legal person, so its debts are normally its own. But directors become personally liable in defined situations: insolvent trading, unpaid tax and super, personal guarantees, breaches of duty and statutory offences. This page maps each route, the protections and when to act.

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Key points

Limited liability is the starting point, not a guarantee. The Corporations Act 2001 (Cth) and tax law cut across it.
Directors owe duties of care, good faith and loyalty (ss 180 to 184). Civil penalties reach $1.82 million.
Company debts reach directors through insolvent trading, director penalties, personal guarantees and compensation orders.
“Director” includes anyone who acts as one, or whose instructions the board follows, without appointment.
Protections exist, but each depends on acting early and keeping records.

General guidance only – not legal advice. Please obtain independent legal advice before relying on any of this information. The law is stated as at September 2026.

Am I personally liable for my company’s debts?

Usually not. Since Salomon v A Salomon & Co Ltd [1897] AC 22, a company has been a legal person separate from its shareholders and directors. Creditors contract with the company, not with you.

The exceptions below apply to every “director” under s 9AC. That includes a de facto director, who acts without appointment, and a shadow director, whose instructions the board follows. Every director must also hold a director identification number (Part 9.1A), mandatory since 30 November 2022.

What duties do directors owe?

Care and diligence (s 180). Exercise the care a reasonable person would in your position. In ASIC v Healey [2011] FCA 717, Centro’s directors were liable for approving accounts they had not read and understood.
Good faith (s 181). Act in good faith in the company’s best interests, and for a proper purpose.
Position and information (ss 182 and 183). Do not use either to gain an advantage or harm the company.
Criminal liability (s 184). Reckless or dishonest breaches carry up to 15 years’ imprisonment.

Sections 180 to 183 are civil penalty provisions. The maximum is the greater of $1.82 million (5,000 penalty units) or three times the benefit (s 1317G). Directors also owe equitable duties of loyalty: see breach of fiduciary duties.

How can a director become personally liable for company debts?

1. Insolvent trading (s 588G). If the company incurs a debt while insolvent, with reasonable grounds to suspect it, a liquidator can recover creditors’ losses from you.

2. Director penalty notices. Each director is liable for the company’s unpaid PAYG withholding, GST and superannuation guarantee charge (Taxation Administration Act 1953 (Cth), Schedule 1, Division 269). Since Payday Super began on 1 July 2026, super penalties lock down faster.

3. Personal guarantees. Banks, landlords and suppliers commonly require one. It is your own contract and survives the company’s collapse.

4. Breach of duty and compensation orders. The company, its liquidator or ASIC can recover loss caused by a breach of duty, including profits anyone made from it (s 1317H). Shareholders can seek leave to sue in the company’s name (see shareholder disputes).

5. Other statutory liabilities. Officers who cause a creditor-defeating disposition while the company is insolvent face penalties and prosecution (ss 588FDB and 588GAB). So do those behind agreements to avoid employee entitlements (ss 596AB and 596AC). Under s 27 of the Work Health and Safety Act 2011 (Qld), officers must exercise due diligence and can be prosecuted personally. Tax and environmental laws can also deem officers liable for company offences, subject to defences.

Disqualification can follow too. It is automatic for undischarged bankrupts and certain convictions (s 206B). A court can order it after a civil penalty contravention or repeated company failures (ss 206C and 206D). ASIC can disqualify for up to five years after two or more liquidations in seven years (s 206F).

What protections do directors have?

Business judgment rule (s 180(2)). An informed, good faith decision, free of personal interest, that you rationally believe serves the company meets the duty of care. It does not cover insolvent trading.
Reliance and delegation (ss 189 and 190). You may rely in good faith on employees, advisers and fellow directors after your own assessment, and on delegates you reasonably believed competent.
Safe harbour (s 588GA). Debts incurred while pursuing a course of action reasonably likely to lead to a better outcome are protected from insolvent trading liability.
Insurance and indemnities. D&O insurance and a deed of access and indemnity help. But s 199A stops the company indemnifying you against liability to it, penalties or compensation orders. Some policies exclude insolvency claims, so read the wording.
Court relief (ss 1317S and 1318). A court may excuse a director who acted honestly and ought fairly to be excused.

What should you do if you are worried about personal exposure?

Act on the warning signs: cash flow shortfalls, overdue ATO debt, superannuation arrears, creditors outside terms, and statutory demands. Early action keeps the most options open, including safe harbour and voluntary administration or restructuring.

Get current figures: cash flow forecast, aged creditors, ATO and super balances.
Check your ASIC record, including the address used for a director penalty notice.
List every guarantee you have signed, and find your D&O policy and any deed of indemnity.
Minute what the board knows, is advised and decides.
Do not move assets or favour creditors. That can create new liability.
Take legal advice before responding to a liquidator, ASIC or the ATO.

How Taylor David can help

We act in Brisbane and across Queensland for directors, boards, liquidators and creditors. We can:

assess your exposure across every route on this page
advise boards on solvency, safe harbour and restructuring
respond to liquidator, ASIC and ATO claims, then defend or settle them
review guarantees, insurance and indemnities.

This work sits within our insolvency, litigation and reconstruction and turnaround practices.

Frequently asked questions

Questions we are often asked

Can I lose my house because my company failed?

Not because of the failure itself. A company’s debts are its own. But a judgment for insolvent trading, a director penalty or a call on a guarantee is your personal debt. If you cannot pay, a creditor can seek to bankrupt you. A trustee can then sell your interest in your home, even if jointly owned.

Does resigning as a director end my liability?

No. You remain liable for conduct and debts during your time in office, and guarantees continue unless released in writing. Director penalties for amounts due while you served still apply. If ASIC is not notified within 28 days, your resignation takes effect only when it is (s 203AA). Take advice on timing.

Am I liable if I am a director in name only?

Yes. The law does not recognise a “sleeping” or nominee director. Every appointed director owes the duties in ss 180 to 184 and the duty to prevent insolvent trading. Leaving management to a spouse or co-director will rarely be a defence. Courts expect each director to understand the company’s financial position.

Can the ATO pursue me personally?

Yes. Each director is personally liable for the company’s unpaid PAYG withholding, GST and superannuation guarantee charge. After the 21 days under a director penalty notice, the ATO can sue you, garnishee your bank or wages, or offset your tax refunds. Payday Super has shortened the time before super penalties lock down.

Will D&O insurance cover me?

Sometimes. D&O policies usually cover defence costs and breach of duty claims, within their wording. Policies commonly exclude fines and penalties, dishonesty, insolvency-related claims and circumstances known before cover began. Personal guarantees and director penalties are generally not covered. Read the policy, notify circumstances early, and check any indemnity deed against s 199A.

General guidance only – not legal advice. Please obtain independent legal advice before relying on any of this information. The law is stated as at September 2026.

Related expertise

Insolvency →Litigation →Reconstruction & Turnaround →

The earlier we talk, the more options you have.

To discuss your situation in confidence, call Scott D. Taylor on +61 7 3229 9800, email [email protected] or send us an enquiry online.

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