Being appointed as a director is not a nominal role. A person may leave the day-to-day running of a company to a co-director, spouse, manager or adviser, but they do not leave their legal duties behind.

The recent decision in Kim v JM World AU Pty Ltd (in liq); Bak v JM World AU Pty Ltd (in liq) [2026] NSWCA 146 is a practical warning. The New South Wales Court of Appeal majority held that a director’s continuing inaction enabled the other director’s conduct and contributed to the company’s loss.

What duties apply to an inactive director?

Under section 180(1) of the Corporations Act 2001 (Cth), directors must exercise the care and diligence that a reasonable person would exercise in the company’s circumstances and in the director’s position. Directors must also act in good faith in the company’s best interests and for a proper purpose, and must not improperly use their position or information.

Those duties apply to executive and non-executive directors alike. They also apply where a person is described within the family or business as a director “in name only”.

The cases do not require every director to manage every operational detail. They do establish a core minimum:

1. Understand the business;
2. Remain informed about its activities and financial position; and
3. Monitor its affairs and ask questions when a matter calls for inquiry.

In Daniels v Anderson (1995) 37 NSWLR 438, the Court rejected the idea that a director can simply leave supervision to others. In Australian Securities and Investments Commission v Healey (2011) 196 FCR 291, the Federal Court similarly described a core, irreducible requirement to take reasonable steps to guide and monitor the company.

What happened in the JM World case?

Mr Bak and Ms Kim, who were husband and wife, were JM World’s only directors and equal shareholders. Mr Bak managed the business. Ms Kim understood that she had been appointed as a director “just in case”, had no meaningful involvement and left the company’s affairs to her husband.

In 2019, Mr Bak signed a building contract in JM World’s name for substantial renovations to the couple’s home. The company later became liable for a judgment debt of approximately $520,000 owed to the builder.

In May 2021, after JM World sold another property, approximately $984,000 of the proceeds was paid to two South Korean companies associated with Mr Bak and a Japanese company. A further $50,000 was retained to pay a replacement builder. Ms Kim did not know about the payments, but knew the Australian business was not doing well and that the property was being sold. She did not ask what would happen to the proceeds or how creditors would be paid.

The primary judge found that Ms Kim fell well short of the minimum expected of a director. Her lack of knowledge did not assist her because it resulted from never taking any role in the company. The Court of Appeal majority upheld that conclusion and found that her inaction also caused the company loss.

What did the Majority Say

The majority approached directors as corporate gatekeepers. Ms Kim’s continuing acquiescence allowed Mr Bak to exercise authority to her exclusion. Had she actively performed her role, the majority considered that she could have asked basic questions, required major transactions to be approved by the board, objected, convened a directors’ meeting and, if the conduct persisted, resigned and notified ASIC of the reason.

The majority inferred that proper intervention would have made a difference. There was no evidence that Mr Bak would have lied to Ms Kim or proceeded over her objection.

Is relying on another person a defence?

Reliance and delegation are legitimate features of company management, but neither is a blank cheque.

Section 189 of the Corporations Act 2001 (Cth) can support a director’s reliance on information or advice from a competent employee, professional adviser, expert, fellow director or board committee. The reliance must be in good faith and follow an independent assessment, having regard to the director’s knowledge of the company and the complexity of its operations. The director must also reasonably believe the person relied on is reliable and competent in relation to the matter.

Section 190 deals with delegation. A director may remain responsible for a delegate’s conduct unless the director reasonably believed the delegate was reliable and competent and, after proper inquiry where required, believed the delegate would act lawfully.

The practical distinction is between informed reliance and blind dependence. A director cannot rely on information they never requested, accept assurances in the face of warning signs or delegate the irreducible responsibility to remain informed and apply their own mind to important decisions.

What should a director who is not involved day to day do?

The appropriate level of oversight depends on the company’s size, business, financial position and allocation of responsibilities.

As a minimum, a director should:

1. Receive and review regular financial and operational information;
2. Understand the company’s major assets, liabilities, creditors and cash flow;
3. Ask questions about unusual, related-party or significant transactions;
4. Ensure major decisions are properly considered and recorded;
5. Obtain independent professional advice where necessary; and
6. Act promptly if information is withheld, warning signs emerge or the director is no longer able to perform the role.

Resignation is not a cure for past breaches, and it should not be treated as the automatic answer to every disagreement. However, remaining registered as a director while being excluded from the company, or while unable or unwilling to provide meaningful oversight, can carry substantial personal risk.

The result in Kim also shows that honesty alone may not be enough. Ms Kim was found to have acted honestly and had significant psychological health issues, but the Court upheld the refusal to relieve her from liability. Whether illness or other circumstances excuse a director is fact-sensitive; they should not be assumed to suspend the office or its duties.

How can PGC Legal assist?

PGC Legal can advise directors who are concerned about their continuing involvement in a business, including the steps available to obtain information, address governance problems and assess the risks of remaining in office or resigning. We also act for directors defending allegations of breach of duty and for liquidators investigating and pursuing claims arising from directors’ conduct.

For advice about these issues, please contact Brenton Priestley, Partner, Peter Charatsis, Partner, Jonathan Khoury, Special Counsel, Jake Richter, Associate.

This article is general in nature and does not constitute legal advice.