Attention all Directors! Do you have sufficient knowledge of your company?

Directors have a range of duties to the companies to which they are appointed as well as to its shareholders to act with due diligence and care. Failing to do so can result in both civil and criminal sanctions – to both the company and the individual director.

ASIC chair Joe Longo recently addressed the Australian Institute of Company Directors’ (AICD) Australian Governance Summit and provided insight as to how ASIC views director duties in practice. Mr Longo indicated that when directors are discharging their duties, they should consider:

  • whether they understand the business of the company
  • whether they have a continuous curiosity in understanding all aspects of the company’s core business as well as the reasonably foreseeable financial and non-financial risks posed by that business
  • whether they are committed to challenging management to ensure their understanding is well-founded
  • what resources need to be allocated to ensure compliance
  • what compliance systems and processes should be established
  • how can they ensure the right people are in place to enable the company to comply in an effective way

Considering the above factors can go some way to assisting directors to ensure they are not in breach of their director duties.

Mr Longo provided a useful summary of the four (4) main areas directors should turn their mind to:

  • ensure they are across the work their company does
  • act with honesty and integrity and take responsibility for their role in the actions of the company
  • review information and reporting systems, plan for and consider the consequences and risks of all options; and
  • their fundamental duty to build a culture of compliance and transparency.

Potential consequences of insufficient knowledge and action

Directors have statutory duties prescribed in the Corporations Act as well as duties at common law. Additionally, directors of financial services and credit businesses have a duty to ensure financial and/or credit services are provided in compliance with the law. As the financial services and credit space continuously evolves it can be time-consuming for directors to ensure they remain on top of their compliance and regulatory obligations to provide services efficiently, honestly and fairly.

In addition to the civil and criminal sanctions directors may face due to a breach of their duties, directors can also face banning and/or disqualification orders from ASIC. This was the case for the director of Foxi Capital AU Pty Ltd. In this case, ASIC found the director contravened financial services laws by:

  • making false and misleading statements and
  • engaging in misleading and deceptive conduct in relation to financial products.

ASIC banned the director from providing financial services and being involved in carrying on a financial services business for a period of eight (8) years.

If you are a director of a financial services and/or credit business you should consider your capacity to act in the role and your ability to appropriately discharge your duties. Please feel free to contact us should you have any questions.

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