by Adam Lysle

Time and time again the old bandwagon of director’s duties comes out. However, now more than ever, the corporate watchdog is using their federal connections with the ATO and Department of Employment to take action against directors. I guess therefore, it’s time to take heed before taking action when businesses and/or directors enter into a stressful period.

Earlier this month a former director of a company was convicted for withdrawing almost $30,000 from the Company’s bank account for his personal use. There is potential for a custodial sentence to be handed down for this offence. Earlier in July, a sentence was handed down for a director of a collapsed NSW beauty chain for two years where he misappropriated $2.6 million. ASIC also wound up 10 companies which collectively owed almost $500,000 in employee entitlements.

Knowing that ASIC and the ATO have a spotlight on illegal phoenix activity which costs the Australian economy over $3 Billion per annum, it is time now to take on board some key points in order to prevent a catastrophic event and in turn suffer some consequences. Why is this such an issue though? Well, ASIC’s view is that directors are more likely to engage in illegal phoenix activity when their companies are experiencing cash flow problems and with over 1,200 directors being reported nationally for failing to prevent a company from trading whilst insolvent. Directors have a fiduciary duty and should consider their position first and foremost.

Some key points for directors include:

  • Plan ahead for the tough times and put together an action plan for when critical issues arise;
  • Ensure you have a great accountant and a strong lawyer in your camp and that you refer to them regularly for advice;
  • Stay on top of numbers. Numbers are key to managing your business in the right direction;
  • Accept that stuff happens but taking the right steps when facing adversity is the sign of great leadership; and
  • When in doubt – get good advice.

These five key points are not exercised often enough and this is where directors run into trouble. Surrounding yourself with truthful advisors is paramount not only when things are all great and rosy. However, when disaster approaches, having them around you when times are tough is an obvious default tactic for most directors but if we were to use a sporting analogy, directors need to train well for the big game and having them around you as preventative partners is always going to add value to your business and hopefully prevent disaster.

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