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Will I make a difference or will I lose my shirt?
The recent recession has brought about a sea change in the way that we look at the role of a company director and directors’ liability. It is no longer seen as a comfortable position of power and control but it attracts the real risk of personal liability for a director. In addition, proposed changes to company law criminalise breaches of certain directors’ duties in an effort to increase accountability and protect investors. It is prudent for directors to undertake a health check and seek advice in relation to their responsibilities.
Criminal liability for breach of director duties
The Companies and Limited Partnerships Amendment Bill, introduced late last year, will (amongst other things) criminalise breach of two of the existing duties in the Companies Act:
Under the Bill a director will be criminally liable if he or she knows that his or her breach of these duties is either seriously detrimental to the interests of the company, or would result in serious loss to the company’s creditors. Breach of either offence could result in penalties of up to five years’ imprisonment or a fine of up to $200,000.
Reducing your risk
To reduce the risk of attracting personal liability, a director needs to “tick all the boxes” and seek professional advice where appropriate. For example, there is often a temptation to prefer one creditor over another because that creditor is applying the most pressure, threatening legal proceedings or withholding supply. Often a decision is made to solve an immediate problem but it has (often unintended) consequences for another creditor. It is in the difficult times that directors should seek professional advice from a lawyer with specialist knowledge in this area.
fund due to the wording in one policy. This is being contested but the sharp consequence is that the directors have had to personally fund the legal defense costs. That can put the director at a significant disadvantage and add to the stress of having to defend legal proceedings.
The information contained in this publication is of a general nature and is not intended as legal advice. It is important that you seek legal advice that is specific to your circumstances.
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