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Fair Work Act
The New Fair Work Act is explained - implications for small and medium business.
Directors’ Duties
ASIC has released a consultation paper aimed at giving guidance to directors about their duty to prevent insolvent trading.
Fair Work Act
Directors’ Duties
ASIC has released a consultation paper aimed at giving guidance to directors about their duty to prevent insolvent trading. The aim is to ensure that directors, particularly in small to medium enterprises understand their obligations. The paper details the legal principles, directors must take into account to ensure they avoid liability for insolvent trading.
On 24 November 2009, ASIC released Consultation Paper 124 - Duty to prevent insolvent trading: Guide for directors. Although the Consultation Paper is intended for discussion purposes and seeks feedback by January 2010, it is useful for directors who want to know more about their duties and what they must do when acting as directors of companies. In the paper, ASIC’s sets out its current views on the requirements which directors must meet to avoid liability for insolvent trading.
Section 588G of the Corporations Act 2001 imposes a duty on directors to prevent insolvent trading by their company. The duty extends not only to directors who have been formally appointed but also to persons who act in the same way as a director or exercise control of a company, even though they are not actually appointed as directors.
If a director fails to prevent their company incurring debts when it cannot pay its debts or incurring a debt which causes the company to become insolvent, then the director can be liable to civil penalties and, where their conduct is dishonest, criminal penalties.
Section 588H of the Act provides a limited number of defences to a director who is accused of breaching their statutory duty to prevent insolvent trading. Those defences include:
• Having reasonable grounds to expect and actually expecting that the company would remain solvent;
• Having reasonable grounds to believe (and in fact believing) that someone else who is “competent and reliable” and responsible for providing adequate information about the company’s solvency and was actually carrying out that role properly and, based on the information they provided, the director expected that the company was and would remain solvent;
• The director did not take part in the management of the company because of illness or another “good reason” (which does not include simply leaving it to other directors to manage the company);
• Taking “all reasonable steps” to prevent the company incurring the debt, including for example, appointing an administrator promptly if the company becomes insolvent.
None of these defences are available if the director was acting dishonestly at the time.
The ASIC Consultation Paper provides guidance on steps directors should take to ensure that they comply with their duty to avoid insolvent trading. These steps include:
• Ensuring that proper books and records are kept by the company and remaining “properly and fully informed” about the financial affairs of the company at all times, so that they can always form a reasonable view about the company’s present financial viability and the impact of incurring any further debts;
• Keeping themselves informed about the financial affairs of the company and regularly assessing the company’s solvency;
• If they identify any concerns about the company’s financial viability, taking positive steps to confirm the company’s financial position and realistically assessing the options available to deal with its financial difficulties;
• Obtaining appropriate professional advice and acting appropriately on the advice received, in a timely manner. This could include, for example, appointing an administrator promptly if the accounting advice received by the director is that the company is insolvent.
The Consultation Paper sets out a useful list of the factors which ASIC will take into account in assessing whether a director has breached their duty to prevent insolvent trading. It also sets out a list of indicators of potential insolvency as a guide for directors.
A copy of the paper can be found on ASIC’s website: ASIC Consultation Paper 124
If you are a director of a company, you need to be aware of your obligations and the risks involved in failing to comply with these and other statutory duties.
For further information, contact:
Statutory Wills
September 2009
Statutory wills arise from a defined process through which the court authorises the creation, alteration or revocation of a will on behalf of a person who lacks testamentary capacity. In this article, Chris Young summaries a recent joint decision which gave the Supreme Court of New South Wales an opportunity to reflect on the historic approach to such matters and provide new guidance and direction under the Succession Act 2009 (NSW).
Legal Update: Statutory Wills
ASIC Launches Insolvency Portal
June 2009
The Australian Securities and Investments Commission (ASIC) has published an insolvency guide on it website to help a range of interested parties to understand the consequences of a company becoming insolvent, being wound up or entering into voluntary administration. The information includes information for directors, creditors, employees, investors, shareholders and liquidators as well as answers to frequently asked questions and other resources and specific information sheets for each category of interested party.
The information is of particular assistance to directors in understanding their obligations:
“ASIC aims to ensure that company directors are aware of their obligations to avoid trading while insolvent, and to take appropriate action, such as getting advice, at the first signs of difficulty. The consequences and impact of corporate insolvency, and flow-on effects to other stakeholder groups, can be mitigated or minimised if directors act early and responsibly”.
ASIC’s insolvency guide can be found on its website: www.asic.gov.au/insolvency
Changes to Family Provision Claims
May 2009
In the past, claims for provision out of an estate in NSW were made under the Family Provision 1982 [the 1982 Act]. From 1 March 2009, the 1982 Act ceased to apply in relation to estates of persons who die on or after 1 March 2009. However, the 1982 Act still applies to the estates of those who died before that date. This means there are now two different sets of rules which could apply to family provision claims in NSW, depending on when the deceased died.
Chapter 3 of the Succession Act 2006 contains the new rules which apply to estates where the person died on and after 1 March 2009. Some of the key changes in include:
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The time limit for making a Court application for provision has been reduced from 18 months to 12 months from date of death.
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The court cannot extend the time for making an application for provision just because the parties agree to an extension. This means that, even if the estate reaches an agreement with the claimant, the claimant will need to start their Court proceedings within the 12 month period.
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A person who was living in a “close personal relationship” with the deceased at the time of the deceased’s death is can now come under a new category of “eligible person”, although they must still establish that there are sufficient factors warranting their making the application for provision.
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There is a new procedure for executors or administrators to give a notice of proposed distributions from the estate once six months has passed since the date of death, in order to protect them from personal liability when they make distributions (provided they have not notice of any claims against the estate).
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There is also a new provision which protects executors and administrators from personal liability where they make distributions in order to provide for the maintenance or education of “eligible persons” who were wholly or substantially dependent on the deceased immediately before the date of death. This will help ensure that distributions needed to help care for children can still be made quickly, without having to wait until six months has passed.
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Unless the Court agrees that there are “special reasons”, all family provision applications must now be referred for mediation before any hearing takes place.
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The Act allows the Government to make regulations fixing of legal costs charged in family provision claims, including the maximum costs that can be paid out of the estate or notional estate. This will affect both claimants and estates and is intended to reduce the number of spurious claims and deter parties from running up high legal costs in small estates.
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For estates with a value of $750,000 or less the Court can choose to decide the cased based on the evidence filed by the parties, without the parties actually having to attend Court and be cross-examined. This again is aimed at reducing the costs incurred by the legal parties in smaller estates.
More detailed commentary is set out in Succession Law and Practice (NSW) published by LexisNexis and commonly referred to as “Mason and Handler”. Richard Neal is a co-author of that work.