company director

Obligations of a Company Director

Transcript:

David Hewitt:

Hi, Josh.

Joshua Cannel:

Hi, Dave.

David Hewitt:

Welcome to the Westcourt Masterclass series. And today we’re talking about obligations of a company director. Now we have a lot of clients in the practice that run through a company structure, so they say about approximately 98% of companies are small business companies, so there’s certain things that our clients might not necessarily know about, and director duties. How big is a piece of string at the end of the day? The director’s got to really know everything so it’s important. So any tax acts that we should be aware of?

Joshua Cannel:

Yeah. One of the most common ones, well, the only common one for all corporations is the Corporations Act of 2001. I think most of our are clients probably sort of familiar with that name, but [inaudible 00:00:54] not really familiar with the actual rules and regulations that’s [inaudible 00:00:57] to it.

David Hewitt:

Yeah. Directors, they’ve got to be over most of the business, don’t they? They have to be fully up to date with what’s going on in terms of financial position, staff, managers, that’s why we always CC Ross and Greg in emails because they want to know everything, and they’ve just going to be active in director meetings. So making a business decision what’s important in directors making business decisions at the end of the day?

Joshua Cannel:

What I find, well obviously what the Corporations Act also outlines is the four basic duties of a director. So first, we start off with acting with care and diligence, then good faith, not using information improperly and not using their position improperly. Some of our clients might be hard to sort of understand how the company is a separate legal entity-

David Hewitt:

Yes, definitely.

Joshua Cannel:

… and the person is the director, doesn’t mean that you’re…

David Hewitt:

Doesn’t mean it’s one big cookie jar. At the end of the day it’s definitely separate. If you’ve got assets that are part of the company, that’s not to improperly use your position to use those assets [crosstalk 00:02:04] whether that be money that you might want to take out of the company to build a bigger house, or go on holidays. That money is the companies, so it involves the company’s money at the end of the day.

Joshua Cannel:

Yeah. You got to understand that distinction. There’s also other important duties that we should be listing and making directors aware of as well, just a few other ones to rattle off is ensuring companies don’t trade insolvent. So you can get in trouble, you can get in really, yeah, some big trouble with that.

David Hewitt:

So I think that’s one of the big things is the obligation is to be actively making sure that the company’s paying [inaudible 00:02:42], whether that be to be trade creditors, a ATO, employees, other statutory bodies, it’s keeping on top of the financial affairs, it’s big obligation because with that comes penalties, as you said.

Joshua Cannel:

There are some, yeah, pretty heavy penalties that come with that in terms of criminal breaches as well, criminal sanctions, sorry, civil sanctions as well, disqualification, so that is something… I’ve seen that common as well, where a director’s sort of not acted in the best interests of the company, and then there’s been a disqualification.

David Hewitt:

As you say, with director penalty that can occur is the company pays the debts, so it pays the employees. Now, if the directors aren’t doing their job and their obligations properly, and those debts build up, then they might have to personally incur those debts.

Joshua Cannel:

Yeah.

David Hewitt:

And what we see is a lot with family businesses is Josh and I are brothers, and I will be the managing director while Josh is more the brains and the beauty, at the end of the day, and so he does all the client facing stuff and does all that hard work. Now he might not necessarily then go and look at what’s going on, but he’s still liable for my decisions at the end of the day. So he’s not looking and feeling his obligations to check the financial information, making sure payments are made, then I’ve gone and spent all the money Josh is getting-

Joshua Cannel:

[crosstalk 00:04:11].

David Hewitt:

… 50/50 [crosstalk 00:04:13] bad idea at the end of the day.

Joshua Cannel:

Yeah. It’s very good to be conscious of what you’re getting into as a director and not just sort of jumping into things just because your brother’s [inaudible 00:04:24].

David Hewitt:

Yeah. So just keeping on top of your obligations is important, so having a regular meeting of the owners or directors.

Joshua Cannel:

Yeah, that’s key.

David Hewitt:

That’s important. Having that quarterly meeting after the end of each quarter, having reports that gives simple information so that whoever’s… Might not be actively managing that financial information can see payments are being made, understanding liabilities, and just having key points of what’s going on.

Joshua Cannel:

Being transparent with the other directors as well, I think that’s key, and making it not so hidden with things, making it out in the opening because it will come out.

David Hewitt:

Recording what’s discussed at those meetings is also important as well.

Joshua Cannel:

Yeah, that’s essential.

David Hewitt:

[crosstalk 00:05:10] just because Josh and I are talking here, we have it recorded so that’s information notes, just writing down points. It doesn’t have to be a document that’s fancy, it can just be dot points, record…

Joshua Cannel:

That is may place.

David Hewitt:

Who was involved and what the intentions are. And that just helps to document what’s going on in the business.

Joshua Cannel:

Yeah, tidy record keeping is key when you have a problem later down the track that could potentially happen. It just avoids any sort of backlash on that.

David Hewitt:

Yeah. There’s a lot to do for a director, so it’s not something that should be taken lightly, especially when you’re asked to start a new company, or if your accountant has said that [inaudible 00:05:53] through a company’s structure, there’s plenty of issues that need to understood and educated about your role as the director, and your obligations to that company. Because when it’s fine, everything’s okay. But when there’s an issue, that’s when it blows up, really, so you just need to-

Joshua Cannel:

Yeah, pretty messy.

David Hewitt:

… do the right things on a consistent basis and then you would have a filled your obligation at the end of the day.

Joshua Cannel:

Yeah. That’s it very good point that you bring up, Dave, is just understanding what you’re getting into. Don’t sort of jump into things because you’ve been directed that way. Be really cautious and conscientious of what you’re getting into.

David Hewitt:

Thanks, Josh.

Joshua Cannel:

Thanks, Dave.

 

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