Did you know an Alternate Director owes the same duties as other Directors?

“Generally speaking, alternate directors are in the eyes of the law in the same position as any other Director” and as such are subject to the normal duties which a Director owes to his company [1]

( Section 9 of the Corporations Act 2001 (“Act”) also provides that “Director” includes a person who “is appointed to the position of Alternate Director and is acting in that capacity”.

Whether an Alternate Director is liable for insolvent trading by the company under s 588G of the Act or fraudulent conduct under s 592 of the Act will depend upon factors such as:

· the terms of the constitution (if any); and

· whether the Alternate Director was called upon to act.

The Terms of the Constitution

There may be a provision in the constitution authorises the appointment and defines the rights and obligations of the office of an Alternate Director. The constitution may indicate whether the Alternate Director is deemed to be a Director of the company in his or her own right, or the agent of the Director making the appointment. However such provision will not protect the Alternate Director from liability.

Was the Alternate Director called upon to act?

In Playcorp, [2] an Alternate Director was held to be not liable under s 592 as under the company's constitution he did not exercise power until he is called upon to fulfil the role empowered by the appointment, and there was no evidence that he had ever acted as a Director of the company. This case indicates that before Alternate Directors could be liable, it would have to be shown that they were acting as Directors when the company contravenes the Act.

An Alternate Director is in the same legal position as any other Director while he or she assumes Directorial authority [3] Once an Alternate Director assumes the active function of the appointor, he or she is fully liable as a Director for acts and defaults during that period.