Company directors need to protect themselves
For more than 200 years there has been a legal barrier between the business life of company directors and their personal life.
This was so directors could develop their business without risking all their personal assets. Without this corporate veil, entrepreneurial zeal would be constantly under threat.
But for many years this ‘corporate veil’ has been under attack to the point where, according to some, it’s been reduced to little more than a tattered rag.
Some of the changes to the law regarding directors of limited liability companies could land the unwary company director in hot water.
Tony Mitchell, business law specialist at Stacks Law Firm, outlines some of the legal developments that may impact directors:
*Directors can be held personally liable for any unpaid Superannuation Guarantee Levies of their company.
*A Director cannot apply for remission of penalties in respect of a company’s unpaid liabilities to the ATO if three months has passed from the date the company’s liability was due for payment.
*A director can be personally liable for PAYG Withholding if a company reports PAYG Withholding on a Director’s wages and that amount is unpaid by the company.
*Directors have a duty to not allow the company to trade when there are grounds to suspect that it may be insolvent, or likely to become insolvent. In this context, insolvent means unable to pay all of its debts as and when they are due for payment.
*The duty to exercise a reasonable degree of skill, care and diligence when performing their responsibilities as a director.
*The duty to make a business judgement in good faith and for a proper purpose, rationally believing that the judgment is in the best interests of the company.
*The duty to avoid wherever possible, and disclose to other directors, any material personal interest that relates to a decision made for the company.
*The duty to ensure that they are appropriately informed about the subject matter of each decision concerning the affairs of the company that they are called upon to make.
*The duty to ensure that the company keeps proper financial records that correctly record and explain the company’s transactions, financial position and performance.
“The continuing deterioration of the corporate veil means it is more important than ever for company directors to develop and have in place appropriate strategies to protect their own personal wealth and their family’s personal wealth,” Mr Mitchell said.
For more information, please see our 2022 article Lifting the corporate veil.