Directors duties to be taken seriously

Directors duties to be taken seriouslyWith the changes to our tax system that are anticipated in the Federal Budget which will see higher personal rates of tax for high income earners and lower company taxes, it stands to reason that use of corporate vehicles to conduct businesses is likely to proliferate. After all, if corporate structures can be used validly to reduce a tax liability and provide a measure of asset protection, it would be sound financial and accountancy practice to use corporate vehicles to conduct business operations as often as possible. But what is often forgotten by those who set up companies to run their enterprise, is the duties that the directors become subject to under the Federal Corporations Act.

Quite apart from using care and diligence in managing the companies affairs, any director has an obligation to act in good faith and to act in the interest of the company (even of their own personal interests), to avoid conflicts of interest between their own and the company’s interests, to act honestly and to use the company’s intellectual property and confidential information for the benefit of the company and not themselves.

Whilst these obligations might seem to simply accord with common sense, they often become of greater importance when the company goes into liquidation or receivership. It is at that point in time that the action of the directors of the failed company become very closely scrutinised and if there has been any breach of duty, a director can be pursued personally.

Where a director of a company has known or ought to have known that the company was in financial difficulties and unable to pay its debts as they fell due, then under the provisions of the Corporations Act, a director can become personally liable for the debts incurred during the period that the company traded whilst is was insolvent.

So while the use of a corporate vehicle makes a lot of financial sense when running a business, it is critically important that directions appreciate and remain competent of the duties that they owe and seek professional advice if concerns arise about the performance of the business or potential conflicts of interest.

Travis Schultz
Managing Partner
Schultz Toomey O’Brien
Ph: (07) 5413 8900
Fax: (07) 5413 8958

Infidelity – how do you overcome it when it’s not a person?

Leisa Toomey 2012As a family lawyer I have seen what Sexual Infidelity can do to a relationship.  However, wounds heal and people move on with their lives.  But be warned, there is another type of infidelity that you may never recover from if it is not discovered in time.

Financial Infidelity is a relatively new term coined to describe the activities of a partner who is hiding the real financial picture from you.

It comes in many guises but in its simplest form it could be anything from secret shopping to having secret credit cards.  However, at the other end of the scale it could be gambling debts or a business venture that has gone bad – and it could be eating away the equity you have in your home – and all without your knowledge.

It appears we all expect honesty from our partners, but a survey by Harris Interactive of 1796 people aged between 25 and 55 says, whilst we might expect it, we don’t always give it.  According to the 2005 survey, 29% of people in a committed relationship admitted to lying to their partner about their spending habits. And it appears that women have more to hide than men with 33% of women saying they had something to hide as opposed to 26% of men.

As one would expect, 96% of those surveyed believed that it was the responsibility of both partners to be completely honest about financial issues, with 24% believing it was more important than being faithful.

Lying about the price of a pair of shoes is one thing.  Lying about the financial losses of a company is another. Francis* came to see me after discovering the business her husband had set up was actually in liquidation, with debts in excess of $50,000 and an overdraft of $20,000.  She had no idea the company was in trouble as he had told her everything was fine.  Her husband had genuinely tried to make a success of it but once he started borrowing to stay on top, his problems just got worse.  Francis was in turmoil as she has felt betrayed by her husbands’ actions. “Had he come to me to say things were not going well, we could have worked it out together” she said.  By not involving me he has exposed me to the debt and not treated me as a valued partner in this relationship. Sadly, the marriage dissolved, along with a significant portion of their savings.

The bottom line is that whilst lies may start off small, they can quickly take on a life of their own which only leads to bigger problems.  The best solution is to be honest about your actions as the truth will eventually surface anyway.