Published on Mar 14, 2016

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The decision by the Adelaide Magistrates’ Court to hand down a suspended jail sentence to a company director for failing in his duties highlights the importance of understanding the obligations holding a directorship brings.

The Australian Securities and Investment Commission (ASIC) brought three charges against the director “for failing to provide a Report as to Affairs [of the company] and deliver books and records to the liquidator of the company.”

ASIC Commissioner Greg Tanzer said it was a statutory obligation to provide assistance to the liquidator when a company is placed into liquidation.

“ASIC will act against company directors and other officeholders who fail to meet their obligations once a company has been placed into liquidation,” Mr Tanzer said.

Last financial year ASIC successfully prosecuted and fined 355 individuals $915,000 for offences relating to directors’ failures to meet liquidation obligations.

Different obligations for a small business directors?

All companies regardless of size have obligations under the Corporations Act 2001 and it is up to the director(s) to ensure these obligations are met.

Ignorance is not bliss, nor is it an excuse. ASIC expects directors to stay informed and understand their obligations and to do their own fact finding and research to clarify any questions or concerns about business operations.

In Australia a propriety company must have at least one director. Many small businesses operate as a proprietary company with a sole director who is also the sole member. However, a small business does not equal small obligations. Even sole directors are expected to record and sign any resolution and to keep minutes regarding management decisions.directors liability

Directors can be held personally liable for a company’s actions if it is found they have breached the law or not acted in accordance with their obligations. The extent of liability can include responsibility for debts incurred by the company, payment of fines and even jail sentences.

It’s very crucial as a director you understand the company’s financial position and performance and ensure it pays its debts and keeps proper records.

It is ASIC’s expectation that directors are involved in the management of the company. It warns potential directors to be wary of appointments framed as ‘you don’t have to do anything’ or ‘you are just needed for a signature’.

Failure to perform your duties as a director can results in fines of up to $200,000 and five years’ imprisonment.

Visit the ASIC website for more information about director’s liabilities.

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