What the law expects of you personally as a Director
If you’re a director or secretary of a small company, you must follow the requirements set out in the Corporations Act 2001 (Corporations Act). Even if you appoint an agent to look after the company’s affairs, you—not the agent—may still be held responsible for those legal obligations.
As a director, you must:
• be honest and careful in your dealings at all times
• know what your company is doing
• take extra care if your company is operating a business because you may be handling other people’s money
• make sure that your company can pay its debts on time
• see that your company keeps proper financial records
• act in the company’s best interests, even if this may not be in your own interest, and even though you may have set up the company just for personal or taxation reasons, and
• use any information you get through your position properly and in the best interests of the company. Using that information to gain, directly or indirectly, an advantage for yourself or for any other person, or to harm the company may be a crime or may expose you to other claims. This information need not be confidential; if you use it the wrong way and dishonestly, it may still be a crime.
If you have personal interests that might conflict with your duty as a director, you must generally disclose these at a directors’ meeting. This rule does not apply if you are the only director of a proprietary company.
What work must a director do?
You and any other directors will control the company’s business. Your company’s constitution (if any) or rules may set out the directors’ powers and functions.
You must be fully up-to-date on what your company is doing:
• Find out and assess for yourself how any proposed action will affect your company’s business performance, especially if it involves a lot of the company’s money.
• Get outside professional advice when you need more details to make an informed decision.
• Question managers and staff about how the business is going.
• Take an active part in directors’ meetings.
Only be a company director or a company secretary if you are willing, able and have enough time to put in the effort.
Avoid any company where someone offers to make you a director or secretary on the promise that ‘you won’t have to do anything’ and ‘just sign here’. You could be exposing yourself to many legal liabilities.
Can anyone be a director or secretary?
You must not act as a director or secretary (or manage a company) without court consent if you:
• are an undischarged bankrupt
• are subject to a personal insolvency agreement or an arrangement under Part X of the Bankruptcy Act 1966 (Bankruptcy Act) that has not been fully complied with
• are subject to a composition under Part X of the Bankruptcy Act and final payment has not been made, or
• have been convicted of various offences such as fraud or offences under company law, such as a breach of your duties as a director or insolvent trading. If you have been convicted of one of these offences you must not manage a company within five years of your conviction. If imprisoned for one of these offences, you must not manage a company within five years after your release from prison.
What are Director Penalty Notices?
Company directors have an obligation to ensure that the company meets its Pay As You Go (PAYG) withholding payment obligations. If you are a director of a company and the company fails to pay a PAYG withholding amount on or before the due date, you can become personally liable for a penalty equal to the unpaid amount. When an amount remains outstanding, the ATO may issue a director penalty notice (DPN).
Within 21 days of service of a director penalty notice, the director must ensure the company:
• pays the amount outstanding
• comes under voluntary administration, or
• has a liquidator appointed.
If the company complies with the notice within the 21 day compliance period, the director penalty will be remitted. If the company does not take appropriate action within this timeframe, recovery action may then commence against the director for the penalty.
Action against a company director may be withdrawn if they were prevented from managing the company at that time due to illness or other circumstances. If this applies to you, contact us to explain your situation.
Here at The Quinn Group our team of experienced tax lawyers and accountants are able to assist you in dealing with the ATO and tax debt issues and requirements as a Director. For more information about the Directors Penalty Notice or for assistance with your PAYG liability, please contact The Quinn Group on 1300 QUINNS or submit an online enquiry.