What can directors be liable for?

Sep 9, 2022 | Publication | 0 comments

Anyone over the age of 18 years who has not been disqualified from being a director of an Australian company may be appointed as a director of a company.

Being a director involves serious responsibilities which carry potential personal liability.  By way of example, directors owe fiduciary duties to the company. 

Directors have a duty to act in good faith, in the best interests of the company and for a proper purpose.

Directors must not make improper use of their position or information acquired through their position to gain an advantage for themselves or any other person or to cause detriment to the company.

Directors must avoid a conflict of interest and disclose material personal interests.

Directors are required to discharge their duties with the same degree of care and diligence that a reasonable person in a similar position would exercise.

A director can be liable in a range of circumstances.  Some circumstances in which a director can be liable include:

1                     Outstanding tax obligations of a company under the Australian Taxation Office’s Director Penalty Regime.  This is often in circumstances where the company has employees.

2                     A director may have provided a personal guarantee – for instance for a company loan.  Often banks require personal guarantees from directors and/or security over personal assets including a home.

3                     Illegal phoenix activity.  This can occur where a new company is created in order to avoid paying outstanding debts including taxes, creditors and employee entitlements of the former company.

4                     A director has a duty to prevent the company from trading while insolvent.  A director will be deemed to have been aware of the company’s insolvency if a reasonable person in the position of the director would have been so aware.

5                     Preference payments made by the company.

6                     Occupational health and safety laws.  Under the relevant legislation, directors may be in breach unless they are able to satisfy a court that the director could not influence relevant conduct of the company or the director used all due diligence to prevent the contravention by the company.

Civil and criminal penalties and liability for damages may arise in relation to director’s obligations.

It is important to obtain legal advice and representation prior to and when any of the above circumstances arise.  For an obligation free appointment, please contact our office on (02) 9633 1826 or emailreception@mcauleylawyers.com.au.

The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this publication is accurate at the date it is received or that it will continue to be accurate in the future. We are not responsible for the information of any source to which a link is provided or reference is made and exclude all liability in connection with use of these sources. If you do not wish to receive newsletters from us, please let us know.

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