Compliance issues are having a rising impact on corporations around the globe. Big and small enterprises navigate a maze of regulation, legislation and best practice codes. The language of compliance is daunting. Conforming can grind momentum to a halt.
Statutory and regulatory obligations govern the conduct of a company, its employees, general management and operations. Responsibilities and obligations include compliance with relevant corporations, competition and consumer, taxation and occupational health and safety legislation.
Compliance with the Corporations Act 2001 (Cth) (Corporations Act) is of upmost importance. It is administered by the Australian Securities and Investment Commission (ASIC) and the Corporations Act provides that companies must comply with requirements of ASIC. Directors need to be wary of the situations, such as insolvent trading, that can give rise to personal liabilities and/or criminal charges. If you are a director of a company, no matter its size or activities, you must ensure you comply with your directors’ duties, as discussed in greater detail below.
In addition, compliance with the Competition and Consumer Act 2010 (Cth) (CCA) is also crucial. The CCA provides that it is your duty to ensure you do not engage in unconscionable, misleading or deceptive conduct, and prohibits further price fixing or supply of goods or services that are not fit for purpose.
Further, compliance with occupational health and safety and taxation legislation is also essential and directors can be liable for legislation breaches. For example, if a company does not pay certain tax liabilities immediately when they fall due, the company directors become automatically liable to a penalty equal to the unpaid amounts.
Understanding these statutory and regulatory obligations is important to ensure that obligations under the Corporations Act and any industry-specific codes or regulations which may apply to that particular business are met. It enables companies to:
- Identify and reduce the risk of breaching the Corporations Act;
- Identify and reduce the risk of breaching the CCA;
- Remedy any breach that may occur; and
- Create a culture of compliance within the organisation.
Our expert team of corporate and commercial lawyers speak the language. We help you translate your compliance challenges into step-by-step processes you can understand and control.
Officeholders of companies also have a set of obligations which need to be adhered to. Failing to do so could lead to personal liability and/or criminal charges. There are both common law directors duties and statutory directors duties which are predominantly contained in the Corporations Act. The four main duties are:
- Duty of care and diligence;
- Duty of good faith;
- Duty not to improperly use position; and
- Duty not to improperly use information.
Other duties include:
- Duty to ensure the company does not trade whilst insolvent;
- Financial reporting duty;
- Duty to disclose interests;
- Duty to lodge information with ASIC; and
- Duty of continuous disclosure.
Practically, what do the directors duties mean for me as a director?
You need to have a comprehensive understanding of your duties, how they need to be implemented and when action is required. You need to have oversight of your company and understand what the company is doing and its financial position.
For example, for insolvent trading, the statutory definition contained in the Corporations Act provides that a company is solvent if, and only if, the company is able to pay all the company’s debts, as and when they become due and payable. If the company is unable to pay its debts as they become due and payable, this likely leads to the conclusion of insolvency. Therefore it is your responsibility, as a director, to identify when the company will be considered insolvent, and to actively ensure the company does not trade whilst insolvent. For more specific advice regarding insolvency, our experienced insolvency practitioners can assist you here.
If you are ever unsure, it is your obligation as a director to inform yourself and ensure you are complying with your duties. Where you are having any trouble with this or require more specific advice for your company, that’s where we come in.
What are the consequences for a breach of director’s duties?
All duties contained in the Corporations Act are civil penalty provisions, meaning where there is breach, a director may incur pecuniary penalty orders, disqualification orders or compensation orders.
For example, a breach of the obligation to ensure a company does not trade whilst insolvent could result in a director being personally liable to pay a compensation to the company. The compensation will be equal to the amount of loss suffered as a result of the director failing to prevent the company from incurring debts while it was insolvent.
There are also criminal consequences for a director of a company who:
- Fails to exercise their duty of good faith in a manner that is reckless or intentionally dishonesty;
- Fails to exercise their duties for a proper purpose in a manner that is reckless or intentionally dishonest;
- Abuses their position in a dishonest manner; or
- Uses information obtained by reason of their position and in breach of duty in a dishonest manner.
How can I cease being liable as a director?
The first and most obvious step is to resign as a director of the company if you no longer have oversight of the company or you can no longer comply with your directors duties.
However, your liability does not necessarily cease immediately when you resign. Changes to the Corporations Act now provide that a person resigning as a director must ensure they notify ASIC within 28 days of the resignation occurring. Failure to do so may result in the artificial extension of a director’s role, including associated liabilities, beyond the date when they ‘resigned’. Further if you are the sole, or last remaining director of a company, your resignation will not be effective unless a replacement director is appointed. For more information on these changes, see our article here.
You will also still remain liable for any breach which occurred whilst you were a director of a company. In addition, after you resign as a director, you remain liable for director penalties equal to unpaid PAYG withholding, net GST and Superannuation Guarantee Charge (SGC) liabilities of the company that:
- Were due before the date of your resignation; or
- Fell due after your resignation when:
- for PAYG withholding and net GST, the first withholding event in the reporting period occurred before your resignation; and
- for SGC liabilities, the date the charge became payable.
These are things to be mindful of when you want to resign as a director.
What if I am only one of a number of directors? Do I still have to ensure compliance?
Each and every director of a company has a responsibility to ensure they comply with their directors duties. This is the case, even where there are a number of directors appointed to a company.
If those duties have been breached, it will not be a defence that you believed the other directors were ensuring compliance with the a relevant statutory obligations of the company.
How can lawyers help me to comply with my duties?
Understanding your compliance obligations is fundamental to safeguarding your business and your personal future. At Coulter Legal, we shape our legal advice to your business, your sector and you. Our expertise will assist you to understand your obligations and give you practical advice to ensure compliance with your directors duties.