Company Directors Responsibilities

The following information is supplied as a service to NIPA members and related stakeholders in the Interior Plantscape Industry.

The Australian Securities and Investments Commission (ASIC) have recently announced the initial results of the pilot program targeted at directors involved with companies suspected of insolvent trading. These measures have primarily come about as a result of high-profile corporate collapses such as HIH, OneTel and Ansett. Whilst these cases are high profile and attract media and regulatory attention, medium to small company collapses will now fall under more scrutiny. The ASIC's approach is to prevent insolvent trading before it occurs but they will also prosecute directors after a company has failed. Company directors must be aware of their company's financial position, with emphasis on cash flow. Ignoring cash flow problems in the hope that things will improve may result in insolvent trading.

To assist NIPA members some indicators of insolvent trading may include:

• Poor cash flow.
• Continuing loss-making activity.
• Accumulating debt and access liabilities over assets.
• Defaulting on loan or interest payments.
• Increased monitoring and/or involvement of financier.
• Outstanding creditors of more than 90 days.
• Significant unpaid tax and superannuation liabilities.
• Difficulties in obtaining finance.

The Corporations Law states that company directors are guilty of an offence where they failed to prevent the company incurring a debt when the company is insolvent. Such an offence may attract both criminal and civil penalties, including pecuniary penalties of up to $220,000 and imprisonment for up to five years. In addition to legislated penalties, the ASIC, liquidators and creditors may seek compensation against a director personally.

This is a timely warning that company directors must keep themselves fully aware as to the financial affairs of any company they are associated with and where appropriate, seek timely legal and accounting advice. As the penalties for insolvent trading are severe, failing to do so may be quite costly.