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Directors often encounter the term “director’s duties” in communications from ASIC, but what do these duties entail, and what are the consequences for failing to uphold them?
Company directors bear legal obligations to their respective companies. These duties are designed to ensure proper corporate governance, protect the company’s interests, and maintain transparency in business operations. Directors must adhere to several key responsibilities under the Corporations Act and other applicable laws:
It should be noted that external administration, a company’s constitution or other agreements may impose additional duties on a director.
Per Section 9 of the Corporations Act 2001 (Cth), a director includes not only those officially appointed and listed with ASIC but also:
Shadow and de-facto directors are held to the same duties (and consequences for breaches) as validly appointed directors.
Directors, including shadow and de-facto directors, can face various consequences if they breach their duties:
Importantly, a director’s duties can persist even after a company’s deregistration.
As detailed above, shadow and de-facto directors are subject to the same duties as a validly appointed director including the requirement to prevent the company from trading while it is unable to pay its debts (also known as insolvent trading).
Failure of any director to prevent the company from trading whilst insolvent can leave that director personally liable to compensate the company for any loss or damage the company has suffered as a result of the insolvent trading. In many cases, the damages can be substantial.
An insolvent trading claim is a common claim brought against directors for the damages suffered by the company as a result of a director’s failure to prevent insolvent trading. Fortunately for directors, safe harbour legislation was introduced for directors to seek relief from insolvent claims if the company is in the process of restructuring.
If you or someone you know suspects insolvency or needs to assess a company’s solvency, consult a professional immediately to limit personal exposure. Our experts are available for confidential, obligation-free consultations to help you better understand your situation. Please reach out using the contact details below to get in touch. Your initial inquiries and meetings with us are confidential, free and no obligation.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.
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