Can you be a Director after Company Liquidation

insolvencyCompany Liquidation

Can you be a Director after Company Liquidation

Yes – but there are rules in corporate insolvency and the ability to be a director in the future.

The rules are explained below but for now, all directors need to understand the Court and ASIC can disqualify a director of a company that enters external administration.

Briefly, whether in voluntary liquidation or compulsory liquidation, as long as a director is not bankrupt, convicted of an indictable offence or subject to a director banning order and disqualified from acting as a director, you are entitled to be a Director of another company immediately after liquidation.

What are the rules if you are disqualified as a Director?

A person who is disqualified from managing corporations will commit an offence under Section 206A of the Corporations Act if:

  • They make, or participate in making, decisions that affect the whole of the business of a corporation.
  • They exercise the capacity to affect a corporation’s financial standing; or
  • They communicate instructions or wishes to the directors of the corporation
    • Knowing that the directors are accustomed to acting in accordance with their instructions; or
    • Intending that the directors will act in accordance with those instructions.

How does a person become disqualified to act as a Director?

A person becomes disqualified from managing corporation under Section 206B of the Corporations Act if:

  • The person is convicted on indictment of an offence that;
    • Concerns the making or participation in making decisions that affect the whole or a substantial part of the business of a corporation or its financial standing
  • Is convicted of an offence that:
    • Is a contravention of the Corporations act and is punishable by imprisonment for a period greater than 12 months; or
    • Involves dishonesty and is punishable by imprisonment for at least 3 months
  • The person is an undischarged bankrupt
  • The person has executed a Deed of Arrangement under Part X of the Bankruptcy Act which terms have not been fully complied with.

Court Ordered Disqualification

Under Section 206C of the Corporations Act, on application by ASIC, the Court may disqualify a person from managing corporations for a period the Court consider appropriate if the Court is satisfied the disqualification is justified. 

In determining whether the disqualification is justified, the Court will have regard to:

  • A person’s conduct in relation to the management of any corporation; and
  • Any other matters the Court considers appropriate.

Under Section 206D and Section 206E of the Corporations Act, on application by ASIC, the Court may disqualify a person from managing corporations for up to 10 years if:

  • Within the last 7 years, the person has been an officer of 2 or more corporations when they have failed; and
  • The Court is satisfied that the manner in which the corporation was managed was wholly or partly responsible for the corporation failing and that disqualification is justified; and
  • On at least 2 occasions, the person has failed to take reasonable steps to prevent the contravention of the Act; and
  • The person has done something that would have contravened a persons directors duties owed to the Company under Section 180(1) & 181 of the Corporations Act – to exercise powers with care and diligence and good faith.

ASIC Ordered Disqualification

Under Section 206F of the Corporations Act the ASIC itself, without Court intervention, may disqualify a person from managing corporations for up to 5 years if:

  • Within the last 7 years before ASIC gives notice, the person has been an officer of 2 or more corporations when they have failed; and
  • While the person was acting as a director or an officer, or within 12 months after the person ceased to be an officer, each of the corporations was wound up and the registered liquidator lodged a report with ASIC regarding its inability to pay its debts

Before disqualification, ASIC must issue a notice to a person requiring them to: 

  • show cause or demonstrate why they should not be disqualified; and
  • The person is to have an opportunity to be heard on the question

ASIC must determine whether the disqualification is justified and it will consider:

  • Whether any of the corporations were related to one another
  • The person’s conduct in relation to the management of the corporations – such as not preventing insolvent trading
  • Whether the disqualification would be in the public interest
  • Any other matters that ASIC considers appropriate.

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