Significant company failures over the past few years have seen the question of corporate governance hit headlines as never before. Investors and other stakeholders such as employees and creditors have voiced concerns regarding the lack of accountability of the higher echelons of the management, in particular the board of directors.
With added scrutiny, not only companies are under pressure to appoint acceptable people to the board of directors, the directors themselves are now taking company management very seriously. In recent years, the Courts have not shied away from lifting the corporate veil in holding directors responsible for bad management practices but also the Australian Securities & Investments Commission (“ASIC”) has brought about high-profile prosecution of the top flyers.
Good corporate governance requires directors to take responsibility for their decision-making and be accountable to those concerned including the employees, creditors, investors, and regulators.
You have been appointed as a Director of a Corporate Trustee according to a Deed of Trust and you are now concerned about your function and role in the Corporate Trustee concerning the liabilities of the Corporate Trustee and your liabilities to the Trust if there are insufficient assets to meet the Trust’s liabilities.
Directors have to know what the company is doing and act honestly and in the company’s best interest. The directors have to ensure that the company is maintaining proper accounting records. In carrying out their duties, the directors must have first-hand knowledge of the company’s operations and performance. They need to engage professional advisors to assist them in decision-making. They also need to regularly question the lower management and other staff about the business. For listed companies, they also have to meet the requirements of ASIC and the Australian Stock Exchange.
To whom and how are the Directors liable?
Directors’ liability can arise in numerous ways, such as:
- If the directors have been acting dishonestly or fraudulently, they can be liable to the shareholders;
- If the directors have allowed the company to trade whilst it was insolvent, then they can be liable to the creditors;
- If the company has not been filing proper documents with the regulators or meeting statutory requirements, then the directors can be liable for that.
Who can be directors?
Anybody who is over the age of 18 years can be a director. The person cannot be undischarged bankrupt or convicted of a serious offense such as fraud or offenses under company law.