In the James Hardie case, Justice Barrett . reminded directors
that board minutes should reflect each individual director's
position, being to support a motion, abstain or agree. Since board
decisions are made by the majority however, a minority director
will effectively be stuck with any board decision to trade on a
company which is at risk of being insolvent.
At that point, if the minority disagree, the minority needs to
resign or face an ongoing personal insolvent trading risk. They are
not absolved from a liability created by the act of the board,
simply by being in the minority director and voting against a
majority decision to trade on. Trying to obtain court relief from
any liability once litigation has started is difficult and
If the resignation reduces the company board number below its
constitutional or statutory minimum, it may be that the resignation
is not effective and ASIC may not accept the official change of
director form. Also, no one will replace a director if an insolvent
trading risk exists in the company. Sole director's face the
To add to the conundrum, the minority director cannot force a
voluntary administration appointment. They might seek a court
ordered winding up, after getting leave of the court. They might
also approach ASIC, in the hope it investigates the company's
insolvency and takes action.
If you have any concerns about your position, please contact
The "phoenix" company transaction has been
well publicised. It comes in many forms, but usually involves
starting a fresh company (the "phoenix" –
Newco)with the same director(s), transferring the key old company
assets to it at undervalue and leaving behind unwanted creditors,
such as the OSR for payroll tax or land tax and the ATO, who are
not required for further trading. Part of the ploy is that no money
is left behind in the old company to enable the liquidator to the
old company to afford to chase Newco or the former director(s).
Directors should be aware of the dangers of attempting this. These
transactions can usually be attacked by a liquidator as a voidable
transaction, or a breach of director's duties. This can lead to
compensation orders against the directors. Any advisor involved
could also be liable for aiding and abetting that breach. ASIC has
a real interest in these transactions. Directors could face
criminal sanctions and monetary penalties if dishonesty is
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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