Every Australian proprietary company must have at least one director who ordinarily resides in Australia (s 201A Corporations Act 2001). Groups sometimes treat this local director as a formality: someone who signs the forms while the real decisions are made overseas. The law does not see it that way. A resident director is a full member of the board, with the same duties and the same personal exposure as every other director.
Understanding that exposure helps a group choose the right person and set the role up so it works for everyone.
The same duties as every other director
A resident director owes the Australian company the same statutory duties as the rest of the board, including to:
- act with care and diligence (s 180)
- act in good faith in the best interests of the company and for a proper purpose (s 181)
- not improperly use their position or company information (ss 182 and 183)
- disclose material personal interests (s 191).
These duties are owed to the Australian company, not to the parent. A resident director can support the group's strategy, but still needs to consider whether each decision is in the interests of the Australian subsidiary.
Australian courts have also rejected the idea of a purely passive director. Every director is expected to understand the company's financial position, read the material put before the board, and ask questions when something is unclear (ASIC v Healey [2011] FCA 717).
Insolvent trading
A director can be personally liable if the company incurs a debt while it is insolvent and there were reasonable grounds to suspect insolvency (s 588G).
This is a real consideration for subsidiaries that depend on their parent for funding. If that support is informal, a resident director may need something more concrete, such as a letter of support or a documented funding arrangement, to be satisfied the company can pay its debts as they fall due.
The safe harbour in s 588GA can protect directors who are developing a course of action reasonably likely to lead to a better outcome for the company. It comes with conditions, including that employee entitlements are paid and tax reporting is kept up to date.
Director penalty notices
Directors can be personally liable for the company's unpaid PAYG withholding, superannuation guarantee and GST, and the ATO can recover these amounts from directors through a director penalty notice. Where relevant liabilities have not been reported within the required timeframes, the director penalty can become "locked down", meaning it may not be remitted merely because the company later enters administration, restructuring or liquidation. The rules differ between PAYG withholding, GST and superannuation guarantee charge.
A new director can also become liable for amounts that were already unpaid when they joined the board, unless the position is resolved within 30 days of their appointment. Since 1 July 2026, Payday Super requires superannuation guarantee contributions to be made with each pay cycle, with contributions generally required to reach the employee's super fund within seven business days after payday. This makes superannuation compliance a much more immediate issue for directors.
Other areas of exposure
Directors are also officers for work health and safety purposes and must exercise due diligence to ensure the company meets its safety obligations. Depending on the business, directors can face personal exposure under consumer, environmental and privacy laws, and ASIC can seek to disqualify directors for serious breaches. Every director must also hold a Director ID.
How a group can manage the risk
The risks are manageable when the role is set up properly. In practice that means:
- giving the resident director board papers, management accounts and payroll and tax status in time to read them
- keeping Australian compliance current, including tax lodgments, superannuation, the ASIC annual review and company registers
- putting a deed of access, indemnity and insurance in place, together with directors and officers insurance that covers the Australian director (noting the limits on indemnities in s 199A)
- documenting parent funding support where the subsidiary relies on it
- agreeing clear escalation lines: who the resident director contacts when something needs attention, and how quickly the group will respond.
Choosing a resident director
A resident director who understands these duties will ask questions, and that is a good sign. A director willing to sign anything without context exposes both themselves and the group. The right appointee brings local governance knowledge, reads what they sign, and raises issues early, which protects the Australian company and gives the parent confidence that its subsidiary is well run.
How we help
Reservoir Legal advises international groups on establishing and governing their Australian companies, including board documents, deeds of access, indemnity and insurance, and governance frameworks. Resident director appointments are provided through Australian Resident Directors.