Directors Duties Must be Fulfilled
Directors have a number of legal duties that include remaining constantly aware of the financial position of the company and acting in a timely manner to address any solvency issues.
The Insolvency Experts can Answer your Questions Regarding:
Your Potential Liabilities
Directors’ Legal Requirements
Avoid the typical pitfalls that can lead to your financial ruin.
Talk to us about your Options today.
Your Questions Answered
Call, or fill in your details below and one of our expert advisors will get back to you within 30 minutes!
Understanding Director Duties and Responsibilities
Directors have a legal duty to remain constantly aware of the financial position of the company. The law not only requires a director to maintain proper books and records but to also:
- regularly review the company’s financial situation
- take active steps to question and confirm the financial position and solvency of the company
- seek advice from qualified professionals if a problem is suspected
- act in a timely manner to address any solvency issues.
The law does not consider it sufficient to understand the financial position only once a year when you sign the annual accounts.
Presumption of Insolvency
If a director fails to maintain or retain financial records for the 7 years required by the Corporations Act, a company will be presumed to be insolvent throughout the period in which records were not kept.
This means that if a claim for Insolvent Trading is made, there will be no defence to that action and personal assets may be lost.
Directors also have a duty to prevent a company from trading and incurring debt while it is insolvent. A company is insolvent if it is unable to pay its debts as and when they fall due for payment.
If a director incurs new debt at a time when a reasonable person in that position would understand the debt could not be repaid when it was due for payment, a claim for insolvent trading may be made and again, personal assets may be lost.
To avoid this, before any new debt or credit is sought, a director must be able to be sure there are reasonable grounds to believe the company is solvent and able to pay its debts when they become due for payment. A director can only do this by reference to the financial records, assuming they have been maintained.
Directors other Duties Under the Corporations Act
All directors must:
- Act with care and diligence
- Act in good faith and for a proper purpose
- Not use their position or information improperly or to gain advantage for themselves or to harm the company
- Act dishonestly or recklessly
Failure by a director to take all reasonable steps to ensure a company fulfills these requirements contravenes the Corporations Act. We can work with you to help you understand and comply with the regulations.