Importance of seeking advice: information for company directors
2 December 2020
- The legal obligations imposed on a company director are complex and serious.
- A company director can be exposed to personal liability or may be found civilly liable, or even criminally convicted, for conduct relating to how they run a company or how they deal with company assets.
- It’s important that company directors get proper advice to try to avoid what can be very serious consequences.
There are some important questions you should consider before engaging an adviser:
- Is the adviser a member of a professional body and are they subject to a code of conduct?
- Are they regulated by ASIC, the Australian Taxation Office or other government agencies?
- Is the adviser listed on ASIC’s banned and disqualified persons register or have they entered into an enforceable undertaking?
- If I receive bad advice or suspect misconduct, can I lodge a report with a professional body or a regulator?
- Do I need help to better understand my legal obligations and understand how I might be personally liable for my decisions?
- Is the adviser the most suitable to assist with the problem I have? A company director may need to engage separate advisers when seeking advice about the affairs of the company and in respect of their personal affairs.
If the advice you get doesn’t appear right, or if it sounds too good to be true, get a second opinion from another adviser.
Be wary of dishonest advisers who approach financially distressed businesses and offer to help restructure a company and enable the business to continue without having any debts. The advice may lead to company directors to breach the law and engage in misconduct such as illegal phoenix activity. Illegal phoenix activity usually involves the transfer of business assets from a company that has liabilities that cannot be paid to a new company, without the new company paying market value for the business assets. This conduct is like stealing company assets.
ASIC, the ATO and other Australian Government agencies work together to detect and prosecute directors and advisers who wind up companies to deliberately avoid paying creditors, employees and tax debts.
For more information, visit ASIC’s Small Business hub at asic.gov.au/small-business
ASIC is Australia’s corporate, markets and financial services regulator.