Company Director? You’re at Risk

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There’s an ever eroding risk accompanying being a company director. Let’s have a look at them.

Neil Parker, BridgePoint Group Managing Director, looks at key risk management strategies for any company director.

There have been erosions to the protections that company directors have traditionally had.

More and more liabilities, particularly to statutory authorities, can be now be affixed against company directors. The whole reason that proprietary limited companies exist is to encourage people to take risks. Without it, it’s pretty hard to have a capitalist economy.

Here are some points that potential and existing company directors need to be aware of in light the director’s penalty notice regime.

  1. If you have personal assets in your own name you don’t want to be exposing those, particularly under this new regime. A lot of people will typically do the husband and wife thing where they’re both directors because “Hey, we’re in this thing together” but you’re really in it together for the benefits of running a business. You’re not in it together for the personal risks that are associated with being company directors. Seek advice if you have concerns.
  2. You need to be very careful if you’re invited to join a board to ensure that all of the debts that are due and payable have been paid up. If you become a company director of a company that already has debts to GST and the like, if that debt remains after 30 days you are potentially covered by the director penalty regime. Specifically looking at tax liabilities, you need to ensure that everything that should have been lodged has been lodged. Very often the tax portal won’t show an amount owing if somebody hasn’t lodged a return. The tax office doesn’t know how much money you owe them until such time as you lodge something. So somebody might print a portal report that shows the company has no tax debt, but in fact, if they had lodged everything they may have a tax debt.
  3. These changes have been incremental. So they haven’t announced that you’re on the hook for payroll tax and workers comp and GST and superannuation all in one hit. They’ve announced one little bit at a time, but it’s starting to add up as to what sorts of debts a company director can be held personally liable for. If that continues, the risk of becoming a company director may be too great.

We deal with a lot of small businesses that have the aspiration for growth and one of the ways that they can cause that growth is to assemble smart men and women around the table and get input from others. It’s going to be increasingly difficult to encourage people to join the SME company board if there is a continued increase in liability with them doing so.

If there’s the continued erosion of all the protections that are available to company directors, that’s a watch point for us as an economy. So just be really careful if you’ve been invited to join a company board to ensure that you’re covering all the bases.

For more information around company directorship, please contact Neil at BridgePoint Group on 1300 656 141.

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