Australia: How to avoid disqualification as a director by ASIC

Last Updated: 26 February 2016
Article by Howard Rapke, Greg Wrobel and Paul Venus

Most Read Contributor in Australia, September 2017

The principle that underpins the concept of a limited liability company is that companies can fail. Entrepreneurialism is encouraged by this principle because it encourages risk taking. Directors can make decisions with the knowledge that, by taking a risk in running a limited liability company, they will be protected from losing their personal assets. Company failure will not result in personal ruin and so you would expect directors to act accordingly 1.

But this limit on liability does not give directors of a limited liability company carte blanche to act irresponsibly in making decisions that affect the company and those it deals with. With the protections of limited liability comes the responsibility to ensure that the company is well managed and that the law is upheld. Directors must take their duties very seriously if they are to enjoy the benefits of being a director.

As a sanction to the director who fails in their duties, the Australian Securities and Investments Commission (ASIC) has the power to disqualify a person from managing a corporation for up to 5 years in certain circumstances 2. ASIC's decision to disqualify a director is open to appeal, in the first instance to the Administrative Appeals Tribunal and then later to the Federal Court of Australia. But obviously it is a much better outcome if the decision of ASIC does not result in a director being disqualified. The following information discusses how best to achieve that result.

Considerations by the Delegate in determining disqualification

ASIC may disqualify a person if, within 7 years before ASIC gives notice to the person to demonstrate why they should not be disqualified:

  1. the person has been an officer of 2 or more corporations; and
  2. while the person was an officer, or within 12 months after they ceased to be an officer, each of the corporations was wound up and a liquidator lodged a report under s533(1) of the Corporations Act about the corporation's inability to pay its debts,

and ASIC is satisfied, that disqualification is justified under s 206F of the Corporations Act.

Disqualification orders are designed to protect the public (including consumers, creditors, shareholders and investors that deal with the company) from the present or future harmful use of the corporate structure or use that is contrary to proper commercial standards. The law seeks to safeguard the public interest in the transparency and accountability of companies and in the suitability of directors to hold office. When deciding whether disqualification is appropriate, and if so for how long, there are a number of matters which ASIC, through its delegate who determines whether to disqualify a director, will be required to take into account 3.

How the director managed the company and ensured that it met its statutory obligations will be an important consideration for the Delegate. The Delegate will want to ensure that the director understands the duties that are required of them by law, that they do their best to comply with those duties and that they do not act in a way that frustrates others who are attempting to administer the company.

A Delegate will consider the nature and seriousness of any breaches by the directors and, in particular, whether there is any fraud, dishonesty or gross incompetence involved 4. The chances of a Delegate deciding that a person should be disqualified from being a director will be very high where these circumstances exist and cannot be explained by mitigating factors.

A Delegate will consider whether a director did their best to avoid insolvent trading. It will be important to show that a director took reasonable steps to cause a company to comply with accounting and reporting provisions and to avoid it incurring debts it cannot pay when due 5. The financial impact of that conduct on other people will be an important consideration and the Delegate will take into account the interests of shareholders, creditors, financiers and employees which have been affected by the collapse of a company.

The director needs to show that they did not have a casual approach to management. They should demonstrate that they understand the relationship between any group entities and each entities' financial position. They should also be able to demonstrate that they saw management needs as important and appointed appropriate staff such as a Chief Financial Officer.

A director will need to explain to the Delegate why taxes may have been unpaid and that the director has simply not tried to use the corporate veil as a way to avoid tax 6. Where there has been a failure to lodge tax returns, the Delegate will be keen to understand whether its circumstances show a disregard of the interests of creditors including the ATO 7.

Directors also need to appreciate that their responsibilities do not end when an external administrator is appointed to a company. The Delegate will examine whether a director has assisted, or have been willing to assist administrators, liquidators and statutory authorities 8. Often the delegate will have a report from a liquidator that sets out any concerns the liquidator had regarding assistance provided by the director. In those circumstances, the director needs to be prepared to explain what they did to assist the liquidator.

A director's character will be an important consideration. If a director shows signs of contrition or acceptance of responsibility, an understanding of the proper role of a company director and duty of due diligence owed to the company, they will have a better chance of avoiding being disqualified. The Delegate will also consider whether a banning order is necessary to ensure that the concerning conduct does not occur again. If a director seems likely to engage in similar conduct in the future the Delegate can determine that a banning order may be in the best interests of the public.

External factors causing company failure will be an important consideration when determining what level of culpability should be borne by its directors for failure of a company. The Delegate will consider whether the failure of the company can be attributed or partly attributed to causes outside of a director's conduct or control. Events such as the GFC, a drought, predatory pricing by competitors, or the unexpected withdrawal of finance may be considered 9. It is important not to assume that the Delegate will be aware of or understand such events, even if they are notorious. The specific nature of an event and its impact on the corporation in question needs to be detailed to the Delegate.

The Delegate can consider inter-company relationships, even if those companies are not strictly "related" in the sense of s 206F(2)(a) of the Act. This includes if the companies had connections - including cross-provision of financial support, common directors, common staff or advisors, common shareholders, and similar activities - such that the failure of one was inextricably linked to the failure of the others and they can effectively be regarded as a single entity by the Delegate 10. It is therefore important to explain those relationships to the Delegate and how they have impacted on corporate failure.

Lastly, the Delegate will consider whether disqualification will cause hardship to personal and commercial interests. The director should explain what current business and personal interests they have that could be affected by a disqualification. Directorships in other companies, involvement in charitable organisations, the need to earn income by being a director to meet family needs and whether or not the director would be capable, by virtue of age, training or other circumstances, from gaining meaningful work are all relevant.

How the hearing works in practice

The hearing to consider disqualification is conducted by a delegate of ASIC. The Delegate is an ASIC officer who is different to the ASIC case officer that initially has investigated the conduct of the director. The Delegate may be physically located in a different city to the case officer and the director who has been given the notice. The Delegate will not have been involved in any initial investigations concerning a director.

Prior to the hearing, the Delegate will require the ASIC case officer to provide the Delegate and the director, with all documents that the ASIC case officer considers relevant. The Delegate will restrict their decision making to a consideration of those documents, as well as any other documents provided by the director. Where more than one director of a company receives a Notice, the delegate will ensure that any evidence provided or submissions that are made by one director that may impact on another director, are informed to the other director. The other director will then be given an opportunity to respond to the material from their fellow director.

The Notice that is sent to a director will ask the director if they wish to be afforded the opportunity to make written submissions, provide written evidence and attend a hearing. If the director asks for an opportunity to be heard, the Delegate will advise the director of a hearing date. Typically that date will be within 4 weeks of the date of the Notice. Even in complex matters, the hearing date is likely to be within 6 to 8 weeks of the date of the Notice. The Delegate will not be unreasonable about minor changes to the timing of a hearing but will not entertain lengthy delays without very strong grounds being advanced.

The director is entitled to engage legal counsel to assist them at the hearing. There does not seem to be any limit on the number of lawyers that a director may engage and ask to attend at a hearing.

Where there are more than one director of a company or group of companies that have received a notice, ASIC may permit the directors to attend a joint hearing.

The hearing will usually occur at the offices of ASIC. The hearing before the Delegate will likely be attended by the case officer who referred the matter to the Delegate. The Delegate will use audio equipment to record the hearing and will ask all parties present to clearly identify themselves at the start of the hearing.

The hearing then proceeds informally. This is not an adversarial hearing, the rules of evidence do not apply and there is strictly no burden of proof 11. However, any findings of fact must be based on material that is "relevant, credible and probative". There are no rules of procedure that apply to the hearing. Witnesses may be led, documents do not have to be formally proved and persons present are not under an obligation to answer questions unless they want to do so.

At the end of the hearing, the Delegate will advise the director that they will consider their decision. The Delegate will note that if further information comes to ASIC's attention, if the Delegate gives a favourable decision to the director, which causes ASIC concerns that the Delegate may ask for a new hearing. The Delegate will also inform the director of their rights of appeal to the Administrative Appeals Tribunal, the ability to seek a stay of the decision and also the time in which a director must take action if they wish to avail themselves of those processes.

If the Delegate decides that the director should be disqualified, they will provide written reasons.

If the Delegate decides that the director should not be disqualified, they will usually just send an email to the director or their lawyer advising of this outcome.

10 Tips to prepare for and participate in the hearing

  1. The Delegate is not the enemy

The Delegate should be addressed respectfully and formally. The process that they are undertaking is very serious and should be treated with respect. The people who are delegates of ASIC are highly trained and experienced professionals. They are not capricious and have no personal animosity towards the directors who are subject to a hearing. It would therefore be wise to treat the Delegate with the same respect that you may pay to a judicial officer, even though the nature of the hearing is much more informal than a judicial hearing.

  1. Written submissions

It is useful to prepare written submissions. They should be prepared with the understanding that they will be used by the Delegate to form an opinion about whether a director should be disqualified. The preparation of clear and concise submissions can assist a Delegate to form a favourable view of a director. However, it is preferable not to read those submissions aloud at the hearing as the Delegate will read them later.

  1. Statements of witnesses

Whilst the hearing before the Delegate is "informal" and the rules of evidence do not apply, the better the evidence that can be presented to the Delegate the more likely that it will be persuasive. The best evidence that a director can present will be written statements or affidavits that closely follow the rules of evidence. For this reason, care should be taken to prepare evidence and where possible, statements should be made available to the Delegate.

  1. Listening to the Delegate

Too often people fail to listen to what is being said to them, particularly when they are experiencing a stressful situation. The hearing will be stressful but despite that, it will be important for the director to listen carefully to any question that the Delegate asks. It is likely that the Delegate will be asking the question because the answer will be important in their decision making. Failure to adequately respond to the exact question asked may therefore adversely affect the director's prospects.

  1. Ensure the Notice and the documents are correct

Do not assume that all of the information in the Notice is correct or that the documents that are provided with the Notice are complete. Mistakes can happen such as incorrect dates, names and amounts of money being recorded. Cross check all information that is provided against independent searches and materials.

  1. Undertakings

It is possible to provide undertakings to the Delegate that certain conduct which is of concern to the Delegate will not occur in the future. Directors should be aware that a breach of such an undertaking will be considered to be unlawful and grounds for immediate disqualification. The Full Court of the Federal Court of Australia decided in Dresna v Misu Nominees (2014) ATPR 42-013 at [16] and [29] by majority, that breaches of an undertaking given to the ACCC were illegal on the basis that they were improper. The same reasoning should apply to breaches of an undertaking given to ASIC.

  1. Personal references

Strictly speaking, it is irrelevant whether someone is willing to give a personal reference about the good character of a director, who is the subject of a hearing to determine whether they should be disqualified as a director. However, these sort of references can be persuasive and should be included.

  1. Personal submissions

In all but exceptional circumstances, even when represented by lawyers, the director should take the opportunity to say something at the hearing. A personal expression of contrition, understanding of why events happened and acceptance of responsibility can be powerful in the presentation of a case by the director.

  1. Liquidators can assist

A director should contact the liquidator of the company that failed and seek their assistance to better explain to the Delegate what happened. The report that a liquidator provides to a company may not fully explain the assistance given by a director to the liquidator, certain events or even all the reasons for corporate failure.

  1. Creditors, Banks and others

If a person who has been affected by the corporate collapse is prepared to support a director, then that evidence should be advanced at the hearing. It is powerful if, for example, a banker for the failed company is prepared to give an opinion that the director did their best and that events beyond their control led to the failure of the company.


All that a director needs from the hearing process is an email from the Delegate of ASIC that is likely to read as follows:

"Having considered the material before me I have decided that an order should not be made under s206F of the Corporations Act 2001 disqualifying [director's name] from managing corporations."

If a director can achieve that outcome they have successfully navigated the path from Notice under s206F to hearing, to favourable outcome.


1 Quinlivan v Australian Securities and Investments Commission [2010] AATA 113 at [79]

2 Corporations Act 2001, s206F

3 See Re HIH Insurance Ltd; Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80 at [56]

4 See also here Kardas v Australian Securities Commission (1998) 29 ACSR 304 at 312

5 Re Delonga and Australian Securities Commission (1994) 15 ACSR 450 at [29]

6 Cullen v Corporate Affairs Commission (NSW) (1988) 14 ACLR 789

7 Healey v Australian Securities and Investments Commission [2000] AATA 9

8 Rich v Australian Securities and Investments Commission (2004) 220 CLR 129 at [43]

9 Cullen v Corporate Affairs Commission (NSW) (1988) 14 ACLR 789; Feher and Australian Securities Commission [1997] AATA 507

10 Re Kimball Andrews and Australian Securities and Investments Commission [2006] AATA 25; JYWV v Australian Securities and Investments Commission [2010] AATA 936

11 ASIC's practice manual

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.