When you quit as a Director, you're still on the hook. Here is why:

Even when you step down as a director, you do not shed all your duties. The duties that arise from the Corporations Act 2001 (Commonwealth) and those that flow from common law and your employment contracts may still bind you. This article explains what these continuing obligations are and the reasons behind them.

Resigning Does Not Erase Past Deeds

When you resign, you end your power to run the company. However, any mistakes or wrong steps taken while you were in office may still bring you trouble later. The law holds you to account for what happened when you were a director.

Obligations Under the Corporations Act 2001 (Commonwealth)

The law sets out clear rules for directors while they hold office. Two key sections in the Act are section 588G and section 180. These rules continue to affect you if you use information or if your past conduct has led to harm.

Duty to prevent insolvent trading (Section 588G)

This section tells you that if you suspect the company cannot pay its debts, you must not allow the company to take on more. If you do, you may be held liable for any loss the company suffers when it cannot pay its creditors.

Duty of Care and Diligence (Section 180)

This rule means that you must act as any sensible person would. You must put the company first and do not use your position for your own gain. If your past actions fall short of this standard, you can be held to account even after your resignation.

Continuing Duties Under Contracts and Common Law

If you have signed a service or employment agreement that includes rules about keeping company matters secret or avoiding work with rival companies, these rules last even when you are no longer a director. For example, the agreement might state:

“The director agrees that all confidential information received during employment must be kept secret. This promise lasts for two years after the agreement ends.”

You may need to respect such promises but depending on the drafting they may be void if excessive. Only a lawyer can guide you on this point. It is a very tricky point and in most cases a grey area. In any case, breaking these sort of terms may lead to a claim for breach of contract and damages. It is common practice, and the courts have set a long tradition in the common law of upholding confidentiality and restraint clauses. In everyday terms, if you have promised to keep secrets, you must continue to do so even after you leave. This is not a choice; it is an obligation that stems from the contract you signed.

Apart from a contract, the common law has long held that if you are given secret company information, you must keep it safe. Even without a written agreement, you must not use such secrets for your own gain. If you rely on these secret details to beat your former company, you may be held to account.

For example, a former director can have a lasting duty not to divert business opportunities that had matured while he was still in office. The law draws a firm line between what is general experience and what is a secret.

You are free to use the skills and general knowledge you have gained over your career. This know-how forms part of your intellectual toolkit. What you must not do is use any special or secret company information for your own benefit. Many decisions in the courts have confirmed that general skills are not protected by the duty of confidence. The law makes a clear distinction between what belongs to you as experience and what is the property of your former company.

Taking the Right Steps When Resigning

You should record your resignation clearly and get a written confirmation from the company. Do not wait for the company alone to tell the Australian Securities and Investments Commission (ASIC). You may wish to notify ASIC yourself so that the date of your resignation is properly noted. This step helps prevent any confusion about when your duties ended.

It is wise to consider the following steps:

• Document Your Resignation: Write a clear resignation letter. Keep a copy for yourself.

• Inform the Australian Securities and Investments Commission: Make sure that the company notifies the commission in a timely manner. Alternatively, you may notify them directly so the effective date is clear.

• Review Your Contract: Understand any ongoing obligations that you have agreed to.

• Return Company Property: Hand back any computers, files or other devices that may contain company data.

• Seek Independent Advice: When in doubt, consult a legal adviser to talk through your situation.

Final thoughts

Resigning as a director ends your authority over the company but does not erase every duty that you have incurred. The Corporations Act 2001 places duties on you while you are a director, and sections such as 588G and 180 show that you had to act with care, to keep the company solvent and to act in good faith. In addition, both common law and any contractual promises require that you keep confidential information secret and not use it to gain an advantage over your former company. Remember, the general skills and industry knowledge that you have picked up are yours to use, but any special or secret information must remain protected.

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