In this article Jacqueline Carmont, a Partner in Business Advisory, explains the challenges and considerations company directors face.
What is a Company Director?
Executive Director, Managing Director, Director of (insert functional area), the title “Director” is used in business to label a role, usually someone in a senior position. The title “Director” is also used across industries and throughout the world, for example a Finance Director or Film Director.
The roles and responsibilities for directors may differ depending on the organisation, industry and location, as can the risks. However, it is important to differentiate a “Company Director” from a director. It may be because of the rise of the title of director that when establishing or joining a company and taking on a director position, there appears to be a lack of awareness of the responsibilities and risks involved.
In Australia, a Company Director is an officeholder of a company. A Company Director has specific duties such as being responsible for oversight of the affairs of the company and must comply with director’s legal obligations under the Corporations Act 2001. This applies even if a director appoints an agent to look after the company’s affairs.
Company Directors have minimum requirements whether the size of the company be small or large, private or public. It’s important you are across the duties and minimum requirements. For example, if you are not in a position to understand what is happening with the company you are a director of, you could be exposing yourself to serious liabilities.
What is my personal exposure? Is my family home at risk?
Company Directors who fail to comply with their obligations under Australian law may be subject to penalties and consequences, including criminal charges.
There are circumstances when Company Directors may be personally liable for company debts, for example when a director breaches their legal obligations (e.g. the company continues to trade while it is insolvent). Another example is when a company has employees, if the company has any Pay As You Go withholding or Superannuation Guarantee amounts owed to the Australian Taxation Office (ATO), under the ATO’s Director Penalty Regime current and former directors may become personally liable for a penalty equal to the unpaid amount. And we are seeing more action in this area with director exposure via the ‘Vulnerable Workers Bill’ and other taxes.
What if I am not an officeholder?
If you are not a Company Director, you could still be at risk. Shadow directors are individuals who are not appointed as a director but act as a director or give instructions to the appointed directors on how they should act. Shadow directors may still subject to the same duties and be liable for breaches of the laws relating to directors’ duties, even though they were never formally appointed as a director of the company.
What are the learnings?
Whilst it is flattering to be asked to be a Company Director you need to assess the responsibilities and risks associated with the role. You should consider the advice your business receives and your insurance requirements amongst other things.
At the end of the day you should undertake your due diligence and make an informed decision.