Do you know your responsibilities as a director in 2023?

Protect your personal position by understanding your obligations

Directors face increasing scrutiny and a range of penalties for wrongdoing

There are an estimated 2.7 million company directors in Australia. Amid an uncertain economic landscape and increasing regulatory requirements, directors may find themselves facing new scrutiny.

The introduction of the Director Identification Number scheme means directors are now easily identified, and there’s nowhere to hide should their actions go awry. Every director must register to receive a 15-digit identifier valid for life:

  • prevents the use of false or fraudulent director identities
  • makes it easier for external administrators and regulators to trace directors’ relationships with companies over time
  • identifies and eliminates director involvement in unlawful activity, such as illegal phoenix activity.

Director key role and responsibilities

Directors don’t always know the full extent of what they’ve signed up for. As a director, key responsibilities include:

  • Oversee and manage the affairs of the company, including assets, debts, employees and investments.
  • Act for a proper purpose, with care and diligence, in good faith; avoid conflicts of interest in transactions; and prevent insolvent trading – per the Corporations Act 2001.
  • Ensure adequate and up-to-date records of ledgers, debtor and sales records, wages and superannuation records, tax returns and calculations, inventory records, investment records, deeds and contracts, and minutes and resolutions.
  • Maintain the company’s required registers (e.g. ASIC register, Form 484s).
  • Pay the required Pay As You Go (PAYG) withholding and Superannuation Guarantee Charge (SGC) amounts to the ATO.
  • Ensure the company holds a shareholder annual general meeting, in accordance with the terms of the constitution or Shareholders Agreement.
  • Seek trusted professional advice when needed to make informed decisions.

Potential penalties

What happens if you fail to meet the above responsibilities? There are several penalties for a breach of directorial duties. The Corporations Act 2001 outlines criminal sanctions, which can range from fines, imprisonment, and civil penalties of up to $1,100,000.
Parties including shareholders, the company or its creditors can also bring civil actions against a breaching director, resulting in personal liability in the form of damages.
The director can also be permanently disqualified from directorship, which is enforced via their Director Identification Number.

What is a Director Penalty Notice?

When it comes to tax and super, if you fail to report and pay on time, you could be hit with a Director Penalty Notice (DPN). A DPN recovers a company's unpaid amounts, making directors personally liable for three types of debt:

  1. Pay As You Go (PAYG)
  2. Superannuation Guarantee Charge (SGC) liabilities
  3. Goods and services tax (GST).

There are two types of DPN:

  1. The traditional DPN gives a director 21 days to either pay the penalty amounts in full, negotiate a payment plan or dispute the penalty to potentially avoid personal liability.
  2. The Lockdown DPN which makes a director automatically personally liable if company tax returns are not lodged within 3 months of their due date and provides no avenues for disputing or avoiding the DPN. 

Tips for good governance as a director

Ensuring good governance is an important part of avoiding risk to the company – and to yourself as director. Good governance relies on:
Diversification – embrace a diverse range of people, cultures, ideas and opinions, recognising that diverse businesses make better decisions.
Sustainability – build long-term strategic value rather than chasing potentially volatile short-term wins.
Risk management – act proactively to identify and mitigate risk with an internal control framework and disaster recovery plan.
Compliance – implement a process for monitoring company activities, identifying any breaches of compliance and rectifying them promptly.
Documentation – ensure recordkeeping is watertight across all facets of the business.
Transparency – be willing to openly share accurate information (good and bad) with stakeholders and shareholders.
Accountability – show integrity by being personally accountable to shareholders, vendors, employees and the general public for the decisions you make. 

Protect yourself and your future

Being a director comes with significant responsibilities and personal risk. Protect your reputation, career and financial position by ensuring you’re across expectations and obligations.

If in doubt, it pays to get advice from an expert accountant who can guide you through the complex tasks on your to-do list, ensuring you – and the company – stay compliant. 

Decipher your director duties with expert accounting advice. 

Ask for a callback from BHT Partners.