A Director’s Duties (Part 1)

October 26, 2016

A company is a popular and effective vehicle to operate a business, including small to medium businesses. Operating your business through a company can provide a level of protection for you personally and for your family, however it is not foolproof.

In this series of 6 bulletins we will give you tips and tricks to keep you from falling into the common traps that expose business operators, and their families, to personal liability.

A company is a separate legal entity and generally is considered to act in its own right, separate from its controllers. This is a long standing legal principle. However, after a number of high profile company collapses and scandals, Courts, and governments through increased regulation, have been more willing to “lift the corporate veil” and impose personal liability on directors.

The Courts, assisted by legislated changes, are increasingly looking behind a company’s decisions and holding the individual directors liable when they fail in the duties imposed on them by law. This action taken by the Courts means if you are a director of a company you must be aware of your responsibilities and duties. If you fulfil these duties and something still goes wrong, only the company is exposed and you remain protected and not personally liable.

Firstly, it is worth considering who the directors of your family company are. If you have more than one director, is it necessary they all remain as directors. For example, if you and your spouse are both directors, consider if one of you should resign so if something does go wrong, only one of you is exposed and not both. When considering this, think about:

1. who holds most of your assets outside the business, for example the family home; and
2. who is doing most of the day-to-day decision-making, for example is one family member directing the staff more often than the other.

It does not matter if you are a mum and dad company or BHP, many of the rules still apply in the same way. Duties and responsibilities which will be considered in this series are:

• skill, care and diligence;
• prevention of insolvent trading;
• employment law; and
• work place health and safety.

Read Part 2 here