Directors serving on the boards of subsidiaries, joint ventures and corporate group entities often face a difficult challenge. They may have been appointed by a parent company, controlling shareholder or joint venture partner, yet their legal duties are owed to the company on whose board they sit.

In many situations, those interests align. In others, they do not.

When competing interests arise, directors can find themselves navigating complex governance issues with significant personal liability implications. Understanding how these conflicts arise and how they should be managed is essential for directors, executives and legal advisers alike.

The Fundamental Principle

One of the most common misconceptions in corporate groups is that a director appointed by a parent company is there to represent the parent's interests. Australian corporate law takes a different view.

Regardless of how a director is appointed, their duties are owed to the company on whose board they sit. This distinction becomes particularly important in:

• Subsidiaries

• Joint venture companies

• Family business structures

• Investment vehicles

• Multi-entity corporate groups

While directors may consider the interests of appointing shareholders, they cannot simply act on instructions if doing so would conflict with the interests of the company itself.

Where Conflicts Commonly Arise

Many governance conflicts emerge during routine commercial decision-making.

Intercompany Transactions — A parent company may seek funding, services or assets from a subsidiary. The transaction may benefit the broader group while creating risk for the subsidiary.

Joint Venture Decision-Making — A director appointed by one joint venture participant may be encouraged to support outcomes favourable to that participant rather than the joint venture company.

Related Party Arrangements — Supply agreements, service contracts and financing arrangements between related entities often require careful consideration to ensure decisions are made in the interests of the company.

Financial Distress — Conflicts become particularly complex when a subsidiary experiences financial difficulty and creditor interests begin to compete with shareholder interests.

In each of these situations, directors must carefully evaluate their obligations before participating in decision-making.

Recognising a Conflict Early

One of the most effective governance tools is recognising conflicts before decisions are made. Directors should ask:

• Who benefits from this decision?

• Does the company benefit independently of the broader group?

• Would an independent director support the proposal?

• Could the decision disadvantage minority shareholders, creditors or other stakeholders?

• How would the decision appear if reviewed by a regulator or court?

Early identification allows directors to implement appropriate governance processes before risks escalate.

Disclosure Matters

Transparency is fundamental to effective conflict management. Where a director has a personal interest or competing obligation that may influence decision-making, disclosure should occur promptly.

Effective governance practices typically include:

• Conflict declarations

• Conflict registers

• Standing notices where appropriate

• Clear board minute records

• Regular reviews of director interests

Good governance is often demonstrated through documentation. If a decision is later scrutinised, contemporaneous records can be critical evidence of how the conflict was identified and managed.

The Importance of Independent Decision-Making

Directors should not assume that a proposal is appropriate simply because it has support from a parent company, major shareholder or influential stakeholder. Every decision should be assessed independently.

Questions that should be considered include:

• Is the proposal commercially reasonable?

• Does it benefit the company?

• Have alternative options been considered?

• Is additional advice required?

• Are there risks that have not been adequately assessed?

Directors who exercise independent judgement are generally better positioned to demonstrate compliance with their duties.

Financial Distress Creates Additional Complexity

Conflict management becomes even more important when a company approaches financial difficulty. As financial pressure increases, directors must carefully consider the interests of creditors alongside those of shareholders.

Transactions that may have appeared acceptable during periods of financial stability can attract significantly greater scrutiny when solvency becomes uncertain. Directors should seek appropriate legal, financial and restructuring advice whenever there are concerns regarding solvency or creditor impacts.

Practical Governance Measures

Strong governance frameworks help reduce the likelihood of conflict-related issues. Practical measures include:

Conflict Registers — Maintaining an up-to-date record of director interests improves transparency and assists with ongoing governance.

Board Education — Directors should receive regular training regarding duties, conflicts and governance obligations.

Independent Advice — External legal, financial or governance advice may assist where conflicts are complex or material.

Clear Board Processes — Board agendas, disclosure procedures and meeting protocols should support effective conflict management.

Robust Documentation — The rationale for decisions, disclosures and governance steps should be clearly recorded.

Good governance often depends as much on process as outcome.

Why Effective Conflict Management Matters

Poorly managed conflicts can result in:

• Regulatory investigations

• Governance disputes

• Shareholder claims

• Reputational damage

• Personal liability for directors

• Disqualification from managing corporations

By contrast, strong governance processes help directors demonstrate that decisions were made appropriately, transparently and in the interests of the company.

Questions Directors Should Consider

Before participating in a potentially conflicted decision, ask:

• Have all relevant interests been disclosed?

• Does the proposal benefit the company itself?

• Would an independent observer consider the process fair?

• Is independent advice required?

• Have governance procedures been followed and documented?

These questions can help identify issues before they become significant problems.

Final Thoughts

Conflicts within corporate groups and joint ventures are not unusual — in fact, they are often an inevitable consequence of complex business structures.

The challenge is not avoiding every conflict. It is recognising conflicts early, managing them appropriately and ensuring decisions are made through a transparent and defensible governance process.

Directors who understand these principles are better positioned to protect both the organisations they serve and themselves.