By Grahame Ward
Business directors are the wheelhouse of a good organisation. The responsibilities of a director of a company are so diverse and varied that they could be doing a handful of things at any one time. From overseeing the company’s affairs to staying up to date on the business’ finances, a business director holds several key responsibilities, some you might never have known about. Here, we reveal five of those lesser-known responsibilities.
It’s also essential to note that directors must comply to the obligations outlined by Australian law. It is critical directors understand the obligations imposed on them as they can become personally liable for the decisions they make.
1. Ensures the company does not trade while insolvent
It is the director’s duty to ensure the company does not enter insolvent trading. Insolvent trading is when the company is no longer able to pay debts when they are due.
If the director is aware or has reasonable grounds to suspect the company is entering into insolvency, it is their duty to act. It is best to act earlier than later as the director may become liable for the debt or ordered to pay compensation to the company and creditors.
The only time a director can defend the company trading insolvent is if they are ill or have reasonable grounds to expect the company was solvent.
The director of the company should look out for the below signs of insolvent trading:
- Decrease in cash flow
- Issues with paying suppliers and creditors on time
- Unable to meet repayments
- Receiving legal documents from creditors, ATO or suppliers seeking funds.
2. Oversees the affairs of a company
The responsibilities of a director are to oversee the affairs of the company. It is the director’s responsibility to comply within the legal obligations outlined by the Corporations Act 2001.
Directors must be up to date on the company’s finances, managers, staff and how the business is going. The director must also take an active part in directors’ meetings.
When overseeing the affairs of the company, the director has the duty and responsibility to:
- Keep informed of the performance of the company
- Assess how any decision can affect the performance
- Seek professional advice when you need assistance to make an informed decision
- Make decisions in good faith
- Disclose any personal interests you have
It is the director’s responsibility to act in the best interests of the company. Directors must act in honesty and exercise unbiased judgement when executing business decisions. Breach of this duty may result in legal action.
3. Keep informed about your company’s financial position
The role of a director in business is to be informed of the company’s financial position. This in turn allows the director to prepare financial and director reports each financial year.
It is the duty of the director to be informed of accounting and recording obligations, so seeking accounting advice is usually necessary. Being informed of the company’s financial performance means directors must manage the assets, debts, employees, and investments.
The directors’ responsibility means they understand:
- The assets owned by the company are the company’s assets and must not be treated as your own.
- They are responsible to pay debts incurred by the company.
- All money invested in the company belongs to the company and must be used for the company’s purpose.
- If the company has shareholders or owners, they are entitled to take dividend payments each financial year.
- The company is responsible for paying debts, it can fall on the director being personally liable if the director breaches their legal obligations.
4. Legally obliged to provide information to a liquidator
If a liquidator has been appointed to liquidate a company, a director has a number of duties to uphold, including an obligation to provide information to the appointed liquidator.
The directors’ duties are to provide:
- All records of the company
- A statement of the company’s activity, business, property, and finances through the ‘Report on Company Activities and Property’ (ROCAP)
- Assistance to the liquidator when requested (responding to liquidator’s letters)
5. Be fully up to date on what your company is doing
The director’s responsibility is to be fully up to date on what the company is doing. Their duty is to know the financial position of the company, ensure managers and staff are aware of how the business is running and take an active part in meetings.
Directors have a duty of care and diligence when exercising business decisions.
If directors fail to perform director duties can result in serious legal action.
For more information on a director’s duties and responsibilities, speak to our experts on 02 9220 7100.
As a director it is important you’re aware of the health status of the business. You can review areas of improvement such as sales, finance or people through our Business Health Check that uses cloud based tools and IDENTIFIX to measure the business. Book your free health check consultation today.