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Under the Corporations Act 2001 (Cth) ("the Act") directors have a number of duties which they owe to the company, including:
In circumstances where a director breaches any of these obligations the Court may make a "declaration of contravention" under Section 1317E of the Act. The Australian Securities and Investment Commission (ASIC) may then ask that Court imposes a fine of up $200,000.00 on the director if their breach:
Company directors have a strict duty under the Act to prevent insolvent trading. Section 588G imposes liabilities on directors in circumstances where they have allowed the company to incur a debt at a time when the director is aware, or could reasonably suspect that, the company was, or may become as a result of incurring the debt, insolvent.
A director will be deemed to have committed an offence if at the time the debt was incurred the director actually suspected that the company was insolvent (or would become insolvent by incurring the debt) and the director's failure to prevent the debt being incurred can be shown to have been dishonest.
The director may be ordered by the Court to compensate the company for any damages suffered as a result of the director's breach according to Section 1317H of the Act. If the Court is satisfied that a disqualification is justified in accordance with Section 206C of the Act, the director may then be disqualified from managing companies for a period of time which is deemed appropriate by the Court.
Other legislation may include personal liability for directors including the Taxation Act, Fair Work Act, Workers Compensation Act and environmental protection statutes.
Section 184 of the Act imposes criminal liabilities on company directors in circumstances where they:
Directors found guilty of an offence under Section 184 of the Act can face a maximum penalty of 2,000 penalty units (currently $220,000), 5 years imprisonment or both.
There are three main defences available to directors, including:
The role of directors in today's climate is very challenging, especially given the many regulations and duties imposed upon them. It is good business practice and commercial risk management to seek financial and legal advice at any time when the company is faced with issues which may have an adverse effect on the company or persons or authorities outside of the company.
If a director has breached their duties they may be liable to compensate the company, and may also be disqualified from holding office. For a serious breach of director's duties, including fraudulent behaviour, the Act can impose criminal liabilities.