1. Why should you listen to me?
- There are over 30 Commonwealth Statutes and over 100 Queensland State Statutes that impose personal liability on Directors and Officers in addition to the Corporations Act;
- Many impose strict liability, i.e. there is no defence with criminal pecuniary penalties applying;
- Some result in significant personal liability for the Company’s conduct or the Company’s debts;
- Of course you can agree to be personally liable for a Company’s debt by giving a personal guarantee but that is your choice.
2. What am I going to tell you that will make you understand why you should listen?
- Although we engage in a diverse range of businesses with different professional or general compliance standards, there are a number of common threads that will render a Director or person acting as a director personally liable, e.g.
- Crime (Taxation Offenders) Act – entering into an arrangement with the intent of securing a position where a company is unable to pay its tax;
- Income Tax Assessment Act – Director’s penalty notices creating personal liability for failing to remit PAYG – this is going to be extended shortly to include the whole of the liability on the integrated account;
- Superannuation Guarantee Administration Act – relating to a failure to cause a company to remit superannuation to funds nominated by employees;
- Competition and Consumer Act – offence with pecuniary liabilities and personal civil liability where an individual concerned is in breach of the Act;
- Corporations Act 2001 – Directors have a duty to avoid insolvent trading. The ASIC has published regulatory guide 217 to assist directors in determining what their obligations are. A liquidator can bring proceedings for an order for compensation for loss suffered by a company as a result of insolvent trading – Section 588m. The ASIC can also seek criminal compensation pecuniary penalty orders for the conduct.
- Corporations Act 2001 – Failing to keep proper books and records is a breach of a director’s duty and can result in the company being deemed insolvent from the time the records weren’t kept properly.
3. How can you avoid personal liability as a director or an officer?
- Obtain adequate compliance, e.g. employ a bookkeeper, provide them with the best software, regularly produce accounts including profit and loss, aged debtors and aged creditors ledger to monitor ongoing insolvency and cash flow available to conduct the business;
- If you consent to be a director and accept the responsibility assert your right to remain informed – do you know whether the company is trading solvently? It is your duty to know the answer to that question each day you are on the company record as a director;
- Make sure your name and address record with the ASIC is correct – do you want to receive that notice that the Tax Office might send you if the company has not paid remitted PAYG tax? – you wish you had – you only have 21 days to take a step to avoid being personally liable;
- Take advice when you are setting up or restructuring the business to assess your risks and adopt the best structure to avoid personal liability – the corollary avoiding personal liability is protecting assets;
- Get Directors and Officers insurance;
- Again, get good advice from a competent consultant to set up systems to ensure compliance with;
- Account preparation;
- Debtors recovery – many businesses fail through failing to collect their money;
- Aged creditors;
- Payroll and superannuation compliance.
- Avoid being deemed to be a director if you are merely a contracted advisor or employee, have a clear written agreement as to your role and that you are not required to act as if you are a director.
