FAQ About Company Director Liabilities

company formation used to be a time consuming, laborious and expensive ordeal, but don’t panic! Now thanks to the internet, to register a new company is quick and easy – now you can have for a small price a company structure and the protection that they offer for a little more then what it would cost to set up a business name. Although a business name might be good for some people, a company may offer more opportunity for expansion – which can be helpful in the long term.

A common question that is often asked when starting a new company is if I become the director of a registered Company will I be liable for the debt.

If a company gets to the point where they can not pay their bills they are called insolvent. An insolvent company in Australia, is a company that is not following the provisions of the Corporation Act, which states that the company must be solvent in order to be trading.

Violating the Corporation Act can potentially mean big trouble for the director of the company. When you are the director of the company, you have to make sure the company follows all applicable laws. As well as this, if there are share holders or creditors you also have responsibilities to them to make sure things in the company are going well for them. That means you have to make sure everyone’s interests are protected.

As the director if you don’t do this you aren’t in compliance with the Corporation Act and you could become personally liable for the company’s debts, especially if you go bankrupt. What happens is the ASIC can charge you compensation proceedings that equal the amount the creditors lost. Additionally there can be a charge of up to $200,000 just for violating the Corporation Act. 

So make sure your company is compliant with its debt and get your accountant and lawyer to ensure your business is up to date.