Stepping into a company directorship is an exciting milestone — but it also comes with serious legal responsibilities. Many directors don’t fall into trouble because of misconduct, but simply because they’re unaware of what the law requires of them.
Below is a six-point checklist to assist new directors stay compliant and confident in their role.
1. Put the Company’s Interests First
Directors must always act honestly, carefully, and in the best interests of the company — not themselves.
This means:
- Avoiding conflicts of interest
- Making informed, responsible decisions
- Understanding that the company’s money is not the director’s money
Even seemingly harmless actions — like taking a loan from the company — can create problems if not properly documented or compliant with tax laws. Poorly managed loans can become personal liabilities later, especially if the company becomes insolvent.
2. Meet All ASIC Compliance Obligations
Directors are legally responsible for ensuring the company meets its reporting and regulatory duties. This includes:
- Paying annual ASIC fees
- Reviewing and approving the annual statement
- Updating ASIC on changes to company or director details
- Passing and lodging a yearly solvency resolution
- Deregistering the company once it is no longer operating
Directors must be comfortable signing off on documents — even if an accountant prepared them.
3. Ensure the Company Can Pay Its Debts on Time
A key responsibility is making sure the company can meet its financial commitments when they fall due. This typically includes:
- ASIC fees
- Tax obligations
- Employee superannuation
- Loan repayments and supplier invoices
Directors can improve oversight by using cashflow forecasts and reviewing financial reports regularly. Remember: late payments to regulators can trigger harsh penalties and further scrutiny.
4. Maintain Accurate Financial and Corporate Records
Good record-keeping isn’t just good practice — it’s a legal requirement. Directors must ensure:
- Financial statements are accurate
- Supporting records are kept and accessible
- Corporate documents are properly maintained
Even if a bookkeeper or accountant manages the day-to-day details, directors are still responsible for oversight. Regular reviews help catch issues early.
5. Watch for Signs of Financial Stress
Directors must monitor the company’s financial health and take swift action when trouble appears.
Warning signs may include:
- Overdue tax or super payments
- Cashflow shortages
- Increasing debt
- Inability to pay creditors
If insolvency becomes likely, directors must stop trading immediately. Continuing to trade while insolvent can lead to personal liability and sometimes criminal prosecution. Seeking legal or financial advice early can prevent serious consequences.
6. Protect Yourself with Directors’ Insurance
Directors & Officers (D&O) insurance helps shield directors from personal liability if things go wrong. Many new directors underestimate how valuable this protection is until they need it.
Directors should consider:
- D&O insurance
- Professional indemnity insurance (depending on the nature of the business)
Insurance can be the difference between a manageable business event and a devastating personal one.
Being a director is a significant responsibility — but with the right knowledge and support, it can also be incredibly rewarding. This six-point checklist gives new directors a solid foundation for understanding their duties and staying on the right side of the law.
Source: cpaaustralia.com.au
