WELL THINK AGAIN!
Hey Company Director >>> ONLY SUPERMAN IS BULLETPROOF !!!! (AND HE TOO IS SUSCEPTIBLE TO ATTACK IF KRYPNONITE IS AROUND!)
With a BIG CHEESY GRIN Company Directors' often say to me, "Hey Shane, My business is run by as a company or trust, & accordingly I am protected!!!"
I politely respond,
"You should carefully reconsider your asset protection now! . . . . because there are tens, if not hundreds, of pieces of legislation around the country that are your Directorship 'kryptonite' and that will make you as Director personally responsible, which in turn places your personal assets at risk!"
Most businesses that we are called in to protect with our Asset Protection Strategies are being run by a family company or a trust. Often this is a Mum & Dad family business which was designed by their accountant with mostly tax benefits, rather than asset protection, in mind. The flow on is that if the Director is held personally responsible for the company's liabilities the Director's personal assets are then subject to attack. The main ugly problem with that is that often the shareholding of the family business is also owned by its Directors. Shares in your private company are assets just the same as shares in a listed company like BHP are assets. The end result is that your family business may be sold to recover the Director's personal liability. . . . OUCH!
Here are just a few of the "KRYPTONITE" RISKS for Directors:
A director must act with the degree of care and diligence that a reasonable person would exercise if they were a director of the company and had the same responsibilities as the director - Corporations Act 2001 (Cth), S180(1).
If you don't act with appropriate care & diligence the breach can sound in a civil penalty order against you as Director personally including a large monetary penalty or compensation.
Remember often when a company is sued by customers, employees, investors or competitors the Directors are also joined into the proceedings.
A director must exercise his or her powers and discharge his or her duties in good faith in the best interests of a company. - Corporations Act 2001 (Cth), S184
This is easy to comply with you say because you just have to act as a Director in such a way that an intelligent and honest person would when acting in the best interests of the company, including avoiding any conflict between your personal interests (whether financial or otherwise) and those of the company.
And I say to you, is that duty that easy to discharge? . . . . especially when you are in the conflicted position of needing to act responsibly as Director for the company and at the same time protecting your own interests as shareholder of the company? If "it" ever hits the fan, are you going to objectively be seen to be protecting the customers, employees, investors or competitors interests over protecting your own interests as shareholder/owner?
None of this is a problem anyway you then say. There are no real "KRYPTONITE" RISKS for me because I am indemnified by the company under its Constitution as Director!
Hmmm, think again I say. Certain Corporations Act sections specifically preclude a company indemnifying its Director. Eg. S229 where a company is not allowed to indemnify directors liability for the breaches or against legal defence costs if such liability is established.
Debts incurred by companies acting as trustees
If your company is acting as a trustee, in some circumstances you may become personally responsible for liabilities incurred by the company. For example, if the trustee company breaches the terms of the trust deed.
Consequences of failing to perform your duties as a director:
If you fail to perform your duties as a director, you may:
be guilty of a criminal offence with a penalty of up to a maximum of $200,000, or imprisonment for up to five years, or both
have contravened a civil penalty provision (and the court may order you to pay to the Commonwealth up to $200,000)
be personally liable to compensate the company or others for any loss or damage they suffer
be prohibited from managing a company*.
*Source --- ASIC website – Directors liabilities when things go wrong --- April 2019
DO NOT DESPAIR IF YOUR BUSINESS IS RUN BY A COMPANY OR TRUST & IN VIEW OF THE CONTENT OF THIS ARTICLE YOU HAVE REALISED THAT YOUR ASSETS ARE AT RISK!!!
YOUR SOLUTION IS AT HAND BECAUSE PREVENTION AT LAW IS BETTER THAN CURE. . . . AND MUCH CHEAPER!
CALL US NOW TO BOOK your SuperSession review of your estate and asset protection. . . 1300 886 480
From the desk of Shane Ellis
Shane Ellis is the Principal of Shane Ellis Legal Group & SMSF Law/Equity Protect. He is a Senior Consulting Lawyer specialising in SMSF ESTATES & LAW, FAMILY ESTATE PLANNING, ASSET PROTECTION STRUCTURING & BUSINESS STRUCTURES. He is one of few lawyers in Australia to hold SMSF SPECIALIST ADVISOR (SSA) status & ASIC RG 146 SPECIALIST SELF MANAGED SUPERANNUATION FUND ACCREDITATION. He can be contacted on 1300 886 480 or by email: firstname.lastname@example.org