Director's Penalties - why non compliance could be more costly than ever!
We share our 'Top 5' tips for avoiding the proposed penalty hike by the Coalition.
As the Federal election looms like the Sword of Damocles above the heads of our parliamentarians, the major parties are under increasing pressure to justify their policies in the hope that they might be able to enlist some last minute support from the swing-voting masses. On Sunday, incumbent Employment Minister Michaelia Cash promised that a re-elected Coalition Government would seek to crack down on corporate misconduct by increasing the maximum civil penalty that can presently be imposed on company directors by 8%, from $200,000, to $216,000.
Although the cultural benefits are well documented, this proposed change brings into focus the commercial significance of good corporate governance, and comes as a warning shot to company directors. With the end of financial year just around the corner, it is a good time for directors to re-acquaint themselves with their statutory duties under the Corporations Act 2001 (Cth), and ensure that they have the framework in place to keep them on the right side of the law. We have set out below some key tips for directors to assist them in complying with their obligations:
- Ensure accurate and contemporaneous record keeping – Directors are responsible for ensuring that a Company’s back of house is in order. Vigilance is key in making sure that minute books and signed resolutions are kept and that the regulator is notified of changes to a company’s details.
- Documents are not “set and forget” – Where a company’s circumstances change, so too will its requirements. A Constitution or Shareholders Agreement prepared upon registration of the Company will not necessarily service the Company’s requirements five years down the track. Directors should regularly review a Company’s constituent documents to ensure that they remain relevant and workable.
- Question everything – Ignorance is not bliss, but rather an express train to personal liability. Directors should avoid the “head in sand” mentality and inform themselves of all issues facing the Company, particularly financial matters. Delegation of duties to management or executive staff is not an absolute defence either. Directors will ultimately be held accountable, so it is up to them to be across all decisions made on their behalf.
- Open and transparent communication – Whether it be communication with Company shareholders, financiers or third party contractors, timely and balanced communication is a key feature of sound corporate governance. By managing expectations of a Company’s various stakeholders upfront, directors are able to minimise the risk of hostile relationships, thereby reducing their potential administrative burden in the future.
- Obtain regular advice – If unsure, company directors should obtain independent legal advice. Often they will be indemnified for this under a Directors and Officers Insurance Policy, or a Director’s Deed of Indemnity.