The Australian Securities and Investments Commission (ASIC) has recently disqualified a number of directors from being involved in managing corporations. Under Section 206F of the Act, ASIC is permitted to disqualify directors from managing a corporation up to a maximum period of 5 years. With the provision that within a 7 year period, they were an officer of two or more companies that have been wound up and a liquidator has provided ASIC with a report about each of the company’s insolvencies evidencing possible reasons for disqualification.

With an expected increase in ATO collection activities that could bring about more insolvencies soon. It is likely that the activities of directors involved in these entities will lead to further banning actions from ASIC if their conduct is found to be in breach of Act rules and regulations. Below are some of the recent reasons for banning and disqualification:

Recent Reasons for Disqualification

  • Directors allowing company to continue trade whilst insolvent
  • Failure to maintain adequate books and records, including failure to lodge tax returns and business activity statements with the ATO.
  • Director allowing their partner and themselves to be paid by the company whilst ignoring increasing tax office debts.
  • Failure to keep sufficient operating capital.
  • Surrendering director duties to another party and allowing strategic decisions to be made by a shadow director whilst still holding office.
  • Diverting invoice payments owed to the company to a related entity to defeat creditors prior to a liquidation.
  • Selling off assets prior to a liquidation to a related entity to sidestep payments on employee entitlements.
  • Illegal Phoenixing activity involving assets being transferred without consideration out of multiple indebted companies.
  • Failure to ensure basic strategic management and oversight of a companies activities, in addition to loaning funds to related entities.
  • Dumping risk associated with a finance agreement into the insolvent entity whilst transferring asset title to a related entity.
  • Failure to act with care and diligence in relation to ethical and financial management of companies.
  • Acting with poor commercial morality by failing to pay the ATO in the course of a sale of business, and becoming a director in name only on a company to mislead a third party.

If you have any questions about these disqualification actions and their justifications or would like to review your company’s position, please do not hesitate to contact our office for an obligation free discussion.

Disclaimer

This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to RRI Advisory’s clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.