duty requires a director to exercise independent judgement when acting on behalf of a company, to ensure that the best interests of the company are (objectively) paramount at all times. Duty not to improperly use inside information or position – Directors must not use their position (or any information that they gain by virtue of their position) to gain an advantage for themselves or someone else, or to the detriment of the company. Duty to avoid a conflict of interest and to disclose material personal interests – Directors must make clear disclosures to the company where the affairs or business of the company relate to matters in which the director has a material personal interest. In this regard, it is also worth noting that directors of public companies are required to obtain shareholder approval for transactions which involve their related parties and make disclosures to the market in respect of the director’s personal interests. Duty to avoid insolvent trading – Directors have a duty to ensure that a company does not trade while insolvent, or when the director suspects that the company might be insolvent. Duty to keep proper accounts and records – Further to the duty to ensure that a company does not trade whilst insolvent, directors must keep themselves informed of the accounting position of the company, as well as the company’s mandatory financial reporting obligations (if applicable).

In Australia - given that companies are separate legal entities - company directors are generally not personally liable for the debts of the company. However, there are some circumstances where a director may be personally liable for a company’s debt, or where a director’s conduct may subject them to civil and criminal penalties, as well as damages. Examples of such circumstances include:

Insolvent Trading – Directors who allow a company to trade whilst insolvent will be in breach of the Corporations Act, and in some circumstances, may be personally liable for the debts incurred by the company during the period in which the company traded whilst insolvent. Personal Guarantees – It is common for directors of small private companies to provide a personal guarantee as security for debts incurred by a company. Given that personal guarantees are a separate and binding agreement between the director and the relevant financier, a director will be personally liable for the debt to which the guarantee relates. Breach of Directors’ Duties – Where a director breaches their fiduciary or statutory duties to a company as set out in the Corporations Act (and as outlined above), they may be liable for civil and criminal penalties, as well as damages in favour of the company. Taxation Debts and Superannuation Contributions – Directors can be personally liable for a company’s failure to comply with their GST, Pay As You Go (PAYG) withholding tax and Superannuation Guarantee Charge (SGC) payment obligations.

Director’s Liability

ILN Corporate Group – Establishing a Business Entity Series

Made with FlippingBook Ebook Creator