In making 76 separate recommendations in its final report, the Banking Royal Commission took aim at many players in the Australian financial system. Justice Hayne reserved stinging criticism for the Australian Securities and Investments Commission (ASIC) over its failure to investigate or prosecute company directors for potential breaches of their fiduciary duties.
ASIC on the warpath
One of the recommendations specifically for ASIC was to adopt a more litigious approach. Spurred into action by public criticism and by an additional $70 million in government funding, ASIC has announced 41 separate investigations (13 referred directly from the Commission) and is clearly enthusiastic to meet community expectations around cleaning up the financial system by bringing criminal charges against non-compliant company directors.
A recent win for ASIC in the High Court of Australia (ASIC v Lewski  HCA 63), whereby the Court turned its mind to the high standards expected of directors in exercising their duties.
With ASIC’s commissioner stating recently that they’re receiving more complaints than ever about directors breaching their duties, it’s timely to review your legal responsibilities as a company director.
What are your responsibilities as a company director?
The Corporations Act 2001 divides responsibilities into those of the company and those of the individual director. But a company doesn’t run itself. By accepting the role of a company director, ultimately you are responsible for all of them.
The company must:
- have a current registered office in Australia known to ASIC
- have a principal place of business
- inform ASIC of your directors’ personal details (name, date of birth, current residential address)
- keep financial records that document and explain transactions and state your financial position. As a company grows in size their financial reporting obligations also increase.
- Check that your company details are correct on ASIC’s register, and notify ASIC of changes to office location, place of business, director
- pay ASIC fees
Individual directors have clear responsibilities under the Corporations Act and other related laws. The most important are to:
- act in good faith in the best interests of the company
- exercise care and diligence
- avoid conflicts of interest between what’s best for the company and what’s best for you personally
- prevent the company trading when it can no longer pay its debts (insolvent)
- (in the event of liquidation) assist the liquidator by providing information on company affairs and all the company records you possess.
Debts incurred by a company typically remain the company’s responsibility , except for when a director’s duty has been breached. In that case, a director could possibly be liable for the debt.
Steep penalties for individuals and companies
In February 2019 the Senate passed the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018, which amends the Corporations Act to greatly increase penalties for the most serious offences to 15 years. ‘Most serious offences’ includes breaches of director’s duties, false or misleading disclosure, and dishonest conduct. Civil penalties are substantially higher under the new law, capped at $525 million for companies and more than $1 million for individuals.
Minimise your risks
With penalties getting steeper and oversight becoming more commonplace, the best thing company directors can do is to ensure that legal compliance becomes part of the way you do business.
Stay actively aware of your company’s activities. Attend directors’ meetings. Ask questions. It sounds simple enough, but if that were the case, we wouldn’t be seeing so many complaints to ASIC nor investigations underway.
As experts in corporate law and company directors’ responsibilities, it’s no surprise that we highly recommend seeking legal advice if you’re unsure of whether or not you are compliant with all your directors’ duties.
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