When you’re building a business, trust is one of your most valuable assets.
Founders rely on each other to make sensible decisions. Directors rely on management to act in the company’s best interests. Investors rely on leadership to protect value. And customers rely on your brand to do what it says it will do.
A breach of fiduciary duty is what happens when someone in a trusted position puts their own interests (or someone else’s interests) ahead of the business they’re supposed to protect. In Australia, these disputes can quickly become expensive, distracting, and damaging to your reputation.
This guide is designed to help you understand breach of fiduciary duty issues in Australia from a small business perspective - what fiduciary duties are, who can owe them, what common breaches look like in real life, what the consequences can be, and how to reduce your risk with practical governance and legal documents.
What Is A Fiduciary Duty In Australia?
A fiduciary duty is a legal duty that can arise when one party has undertaken to act for (or on behalf of) another party in circumstances that create a relationship of trust and confidence.
In simple terms: if someone is trusted to use their position or power for the benefit of your business, the law may treat them as a “fiduciary” and require them to act with loyalty and for proper purposes.
While the exact duties can depend heavily on the relationship and the facts, fiduciary duties in Australia commonly include obligations to:
- Act in good faith and in the best interests of the company or principal
- Avoid conflicts of interest (or disclose and properly manage them)
- Not misuse position to gain a personal benefit or harm the business
- Not misuse confidential information gained through the relationship
- Not make “secret profits” (for example, undisclosed commissions or side-deals)
It’s also important to know that fiduciary duties often overlap with other legal duties (like directors’ duties under the Corporations Act 2001 (Cth), contractual duties, and duties of care). A dispute may involve multiple claims at once.
Fiduciary Duty vs “General Fairness”
A common misconception is that fiduciary duty is just about being “fair” or “nice”. It’s more specific than that.
Fiduciary duties focus on loyalty: whether someone used a position of trust in a way that puts personal interest ahead of the business they were meant to protect.
Who Can Owe Fiduciary Duties In A Small Business?
When people search for “breach of fiduciary duty Australia”, they’re often dealing with a conflict inside a company - but fiduciary duties can arise in several common business relationships.
Directors (And Often De Facto Or Shadow Directors)
Directors are the most common example. A director is expected to act in the company’s best interests, avoid conflicts, and not misuse their position.
In practice, issues can also arise where someone isn’t formally appointed but effectively acts like a director (sometimes called a de facto director) or where the board is used to “rubber stamp” someone else’s instructions (sometimes called a shadow director). If you’re a founder, this matters because informal arrangements can still create real legal exposure.
Founders And Business Partners
In early-stage businesses, founders often wear multiple hats - shareholder, director, employee, and “face of the business”. Whether a founder owes fiduciary duties (and to whom) depends on the structure, the person’s role (especially if they are a director), and the specific facts.
If you’re operating as a partnership (rather than a company), partners often owe fiduciary obligations to each other, particularly around conflicts, use of partnership opportunities, and accounting for profits.
Agents (Including Brokers Or People Negotiating On Your Behalf)
If someone is acting as your agent - meaning they have authority to negotiate or deal with third parties on your behalf - fiduciary duties can attach to that relationship. This commonly comes up in sales agency arrangements, distribution deals, property negotiations, or procurement.
Employees (In Limited Circumstances)
Most employees primarily owe contractual duties and duties such as confidentiality. However, some senior employees (or key staff) with substantial discretion, access to confidential information, and power to make decisions can, in some circumstances, be found to owe fiduciary-style duties - but this will depend heavily on their role and what they have undertaken to do.
For business owners, the key point is this: the more trust, discretion, and access someone has, the more likely fiduciary-style duties (or similar legal obligations) become relevant.
What Does A Breach Of Fiduciary Duty Look Like In Practice?
Fiduciary duty breaches often don’t look like dramatic “fraud” scenarios. Many start as business decisions made in the wrong way - especially where conflicts aren’t disclosed, processes aren’t followed, or the founder mindset of “we’ll sort it out later” sticks around too long.
Here are common examples we see in small business and startup disputes.
1) Undisclosed Conflicts Of Interest
A classic breach is where a director (or other fiduciary) has a personal interest that conflicts with the company’s interest and fails to disclose it properly.
Examples include:
- A director steering work to a business owned by a friend or family member without transparent pricing and approval
- A founder voting on decisions that directly benefit them personally (for example, special payments, loans, or side arrangements) without proper governance
- A decision-maker holding interests in a supplier or competitor
One of the simplest ways to reduce risk is to have a clear internal process for identifying and managing conflicts, supported by a Conflict of Interest Policy that actually reflects how your team makes decisions.
Confidential information is a major asset for growing businesses - customer lists, pricing models, supplier terms, product roadmaps, and internal strategies.
A breach can occur if someone uses that information for their own benefit, or shares it inappropriately, especially where it was obtained through a position of trust.
To reduce the likelihood of disputes (and make enforcement easier), it’s usually wise to put confidentiality obligations in writing early, such as through a Non-Disclosure Agreement when discussing your business with collaborators, suppliers, or potential partners.
3) Taking A Corporate Opportunity
This often happens when a director or founder learns about an opportunity through the business (a new client lead, a product concept, a partnership channel, or an acquisition target) and then takes it personally - instead of offering it to the company first.
Even if the person believes they “deserve it”, the legal question is often whether the opportunity belonged to the business and whether it was taken because of the position of trust.
4) Making A Secret Profit (Or Receiving Undisclosed Benefits)
A fiduciary generally shouldn’t profit from their position unless the profit is fully disclosed and properly authorised.
In small businesses, this can show up as:
- Undisclosed referral fees or commissions
- Side payments from suppliers
- Personal rebates or discounts not passed on to the business where they should have been
5) Acting For An Improper Purpose
Directors and officers must use their powers for the right reasons. For example, issuing shares to dilute another shareholder, or making decisions mainly to entrench control rather than benefit the company, can create serious risk.
If your business has more than one owner (or is planning to bring on investors), good governance documents can help set expectations early - including a tailored Shareholders Agreement that covers decision-making, reserved matters, and how disputes are handled.
What Are The Consequences And Remedies For Breach Of Fiduciary Duty In Australia?
If you suspect a breach of fiduciary duty, it’s normal to want a quick, decisive answer - “can we sue?” or “can we remove them?”
In reality, the right response depends on:
- who owed the duty (director, employee, partner, agent)
- what the breach was (conflict, misuse of information, secret profit)
- what evidence exists (emails, board minutes, approvals, financial records)
- what loss occurred (financial loss, lost opportunity, reputational harm)
Some common outcomes and remedies in Australia can include the following.
Compensation Or Equitable Compensation
The business may seek monetary compensation for loss suffered due to the breach. Depending on the claim, the measure of compensation may differ from an ordinary breach of contract claim.
Account Of Profits
In many fiduciary duty cases, the focus isn’t only on what the company lost - it’s also on what the fiduciary gained.
An “account of profits” can require the fiduciary to hand over profits made from the breach (for example, profits from a diverted business opportunity or undisclosed commission).
Injunctions (To Stop Harm Quickly)
If confidential information is being used or a business opportunity is being exploited, the company might seek urgent court orders to stop further misuse.
Rescission Or Unwinding Transactions
If a conflicted transaction occurred (for example, the company entered into a contract that benefited the fiduciary), it may be possible to set it aside in some circumstances.
Director Removal And Governance Consequences
Where the fiduciary is a director, a breach can trigger serious governance and compliance consequences, including removal processes (depending on the constitution and shareholders’ agreement) and potential regulatory exposure.
This is one reason why having a properly drafted Company Constitution matters - it can affect director appointment/removal mechanics, meetings, and decision-making rules.
Negotiated Settlements (Often Faster And Less Disruptive)
Many fiduciary disputes settle before trial, especially where the business wants to limit distraction and preserve value.
Where you resolve a dispute commercially, it’s important to document the outcome carefully - for example with a Deed of Settlement that includes releases, confidentiality, and practical handover terms (like return of documents, resignation steps, or repayment schedules).
How Do You Reduce The Risk Of A Fiduciary Duty Breach In Your Business?
The best time to manage fiduciary risk is before there’s a dispute.
When you’re scaling quickly, it’s easy for governance to lag behind operations - especially if you started as “just two founders and a spreadsheet”. But as soon as you add more stakeholders (co-founders, investors, key hires, contractors), informal processes can turn into legal exposure.
Here are practical steps you can take to protect your business.
1) Be Clear On Roles And Authority
Many disputes come from blurred lines: who can sign contracts, who controls bank accounts, who can approve spending, who owns IP, and who gets to negotiate deals.
Clarity can come from:
- board resolutions and documented approvals
- clear delegations of authority
- well-drafted founder and shareholder documents
2) Document Conflicts Early (And Manage Them Properly)
Conflicts aren’t automatically “bad” - they’re common in small business, especially in family businesses, tight industries, and startups where founders have multiple ventures.
The risk is when conflicts are hidden or unmanaged.
As a general approach, you should aim to:
- require early disclosure of any personal interests
- record disclosures in meeting minutes
- ensure the conflicted person steps back from decision-making where appropriate
- obtain independent quotes/benchmarks for related-party transactions
If your business relies on customer relationships, pricing, systems, product designs, or strategy, treat confidential information like property.
That usually means:
- confidentiality clauses in employment and contractor agreements
- NDAs before sharing sensitive information externally
- access controls (only give “need to know” access)
- exit processes when staff or founders leave (return of devices, passwords, documents)
4) Set Up Founder/Investor Governance Properly
When ownership and control aren’t aligned, disputes can quickly become personal. If you have multiple shareholders, you’ll usually want a governance framework that answers questions like:
- What decisions need unanimous approval?
- How are deadlocks handled?
- What happens if a founder exits early?
- Can shares be transferred to a competitor?
This is where your constitution and shareholders’ agreement can do a lot of heavy lifting - not by “preventing” conflict entirely, but by making the rules clear before money and relationships are on the line.
5) Consider Director Protection (Without Losing Accountability)
Directors take on real responsibility, and that responsibility needs to be matched with sensible protections - particularly as your company grows and brings in external directors.
A common document used for this is a Deed of Access & Indemnity, which can deal with issues like access to company documents and (to the extent permitted by law) indemnities and insurance arrangements.
This doesn’t excuse misconduct - but it helps create a fair and functional governance environment where directors can do their job without unnecessary personal exposure.
6) Act Early If Something Feels Off
If you suspect a breach of fiduciary duty, delay can make things worse. Evidence gets deleted, money moves, customers get contacted, and positions harden.
Practical early steps might include:
- preserving evidence (emails, messages, accounting records)
- reviewing your constitution, shareholder agreement, and contracts
- controlling access to systems and confidential information (without doing anything heavy-handed that creates new risk)
- getting advice on your options before you confront the other party
Even if the goal is a negotiated outcome, knowing your legal position helps you negotiate from strength and protect the business.
Key Takeaways
- A breach of fiduciary duty happens when someone in a position of trust puts their own interests (or someone else’s) ahead of the business they are supposed to protect.
- In small businesses, fiduciary duties commonly arise for directors, partners, and agents - and can also arise for certain founders or senior employees depending on the structure, role, and facts.
- Common breach scenarios include undisclosed conflicts, misuse of confidential information, taking corporate opportunities, and making secret profits.
- Consequences can include compensation, an account of profits, injunctions, unwinding transactions, and governance outcomes like director removal - plus significant time and reputational cost.
- You can reduce risk by documenting conflicts, tightening confidentiality, clarifying decision-making authority, and putting solid governance documents in place early.
This article is general information only and does not constitute legal advice. If you need advice about your specific circumstances, you should speak with a lawyer.
If you’d like a consultation on breach of fiduciary duty risks (or to tighten your governance documents to prevent disputes), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
