If you’re about to appointed as the director of a company, there are several legal and practical obligations you will need to be aware of first. Namely, you must perform them in the best interests of the company. Here we provide a brief overview of some of these key obligations, and how to best prepare for the responsibilities of the role.
Of note, you must consent to act as a director in writing. If you do so, you automatically assume eligibility and the obligations of the position.
Are you eligible to be a company director?
The role of director comes with a high level of responsibility within the company. While pop culture paints some director roles as cushy jobs, the reality is far from this. You must be willing to commit to the responsibilities of a high-level role. Accepting a role with false expectations of little work exposes you to the risk of failing your obligations and the consequences that come with it.
Likewise, there are several factors that may bar you from taking on the role. These include that:
- You are an undischarged bankrupt.
- You have failed to comply with the terms of a personal insolvency agreement under the Bankruptcy Act 1966 (Cth).
- ASIC or the courts have banned you from managing corporations under Corporations Act 2001 (Cth).
- Have been convicted of a dishonesty-related offence (i.e. fraud). Note: this is a ban of 5-years from the date of conviction or, in the case of imprisonment, 5-years from your release.
If you fall within these categories, you must inform your company. Furthermore, you will be automatically disqualified from the role if you fall within the first two of these categories. Hence, there is a continuing obligation to perform actions that could fall within these categories following appointment.
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Obligations as a company director
As a director, you must continuously act in the best interests of the company. Remember, particularly in businesses with shareholders, you must act in their best interests primarily. The Corporations Act 2001 (Cth) governs these obligations. Key obligations include that you must:
- Not make decisions that prioritise your own interest over the company.
- Remain informed on your company’s financial position and make accordingly appropriate decisions.
- Not use any information to inappropriately gain a personal advantage within the company.
- Be open to the advice of those around you and take on help when necessary; you aren’t running the company on your own.
- Handle company assets appropriately. This means you cannot treat them as if they are your own and handle debt appropriately to avoid insolvency.
In particular, these points about good faith are the most important. Heavy penalties, like compensation and criminal proceedings, remain for directors who do not comply.
Further, beyond key decision-making duties, you will become part of the face of the company. Whether you are acting as a sole director, or as part of a board of directors, your roles will include attending:
- Scheduled board meetings.
- Committee meetings.
- Director social activities.
- Community involvement events.
Indeed, a director role is more than decision making and book balancing. It is a holistic role that represents the entire company.
Responsibilities in the event of insolvency
While as a director you will hopefully not have to deal with insolvency. However, it is still important to be aware of your responsibilities in the event it occurs.
The key responsibility here is to prevent your company from trading in the event of insolvency. If the director fails to comply, they may actually become personally liable for paying any debts incurred during this process.
Another is to avoid illegal phoenix activity. This term refers to the act of transferring the business and assets into a new company to avoid paying the debts of the original company.
Finally, if a liquidator is appointed to the company, as the director you must:
- Provide the Report on Company Activities and Property.
- Deliver all company records.
- Provide any assistance or records to the liquidator where necessary.
A failure to comply will cause more trouble than necessary.
Final Thoughts
Ultimately, to be appointed as the director of a company is a big honour. Though, do not take on the role without being prepared for the responsibilities that come with it. If you are about to be appointed and are uncertain of your obligations, we recommend that you seek legal advice to discuss it further.
