ASIC's powers to disqualify a company director.
Deciding whether to voluntarily liquidate a company is a stressful decision for a company's director to make. Often when we are guiding directors through the options available to them, they raise the concern that if their company goes into liquidation, they then be prevented from being a director of another company registered in Australia.
Whilst this is of course a valid concern, the response is that a person can be (or can continue to be) a director of other companies registered in Australia, unless they are otherwise disqualified from managing a corporation.
Part 2D.6 of the Corporations Act 2001 sets out the provisions whereby a person can be disqualified from managing a corporation including:
- Automatic disqualification,
- The court's power of disqualification, and
- ASIC's power of disqualification.
Pursuant to section 206F of the Corporations Act 2001, ASIC has the power to disqualify a person from managing corporations for up to five years if:
- within a seven-year period, the person was an officer of two or more companies that were wound up, and
- a liquidator provides a report to ASIC (under section 533 of Corporations Act 2001) about the events which led to company's inability to pay its debts.
For example, in October 2024 ASIC disqualified a NSW based company director from managing corporations for a five-year period as a result of his involvement in 21 companies which failed between 2016 and 2021.
According to a press release issued by ASIC, the 21 failed companies owed a combined total of approximately $71,444,235 to unsecured creditors, which included significant debts to statutory authorities including $21,727,914 owing to the Australian Taxation Office, $1,285,894 owing to the Office of State Revenue and $1,287,138 for outstanding workers compensation.
Additionally, ASIC found that the director had failed to discharge his duties as he:
- agreed to act as a director of numerous companies, but didn't participate in their day-to-day management,
- failed to ensure certain companies complied with their taxation obligations,
- allowed certain companies to trade whilst insolvent,
- failed to ensure certain companies maintained adequate financial records, and
- failed to assist the appointed liquidators in respect to delivering up company records.
In disqualifying the director, ASIC relied on information provided in supplementary reports submitted by the liquidators of the failed companies.
This example highlights the conduct that ASIC is looking to prosecute. So, whilst it's not a 'one strike and you're out' system, company directors must always ensure they are adequately discharging their duties for each company of which they are an officeholder.
Worrells, with 34 Principals across multiple locations, help both companies and individuals to recover from difficult business and personal financial situations. For more information on director disqualification, or to seek advice on a specific situation, please contact us for a complimentary and confidential discussion.
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.
