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31 Jul 2018

18 failed companies in a 6-year period


3 min

ASIC’s powers to disqualify directors.

Some directors who seek advice from us regarding their company’s financial difficulties are concerned that if their company goes into liquidation then they cannot be a director of other companies.

We advise directors that legally they can be a director of any number of companies and it is only if they are disqualified from managing a corporation that they cannot be a director.

Part 2D.6 of the Corporations Act 2001 sets out when a person is disqualified from managing a corporation including:

  • Automatic disqualification.

  • The court’s power of disqualification.

  • ASIC’s power of disqualification.

ASIC’s powers, under section 206F of the Corporations Act, allows ASIC 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) about the company’s inability to pay its debts.

Director Banning

In a recent Federal Court of Australia case, the Court dismissed an appeal of an Administrative Appeals Tribunal (AAT) decision, affirming ASIC’s decision to disqualify a director from managing corporations for three years.

ASIC originally disqualified Mr Lubo Zivanovic from managing corporations for three years on 18 February 2016, following his involvement in 18 failed companies that operated in the building and construction industry. The 18 liquidations occurred over a six-year period and the total deficiency to creditors was estimated to be over $26 million!

The director then appealed ASIC’s disqualification decision to the AAT. At the same time, the director obtained suppression orders that prevented ASIC from disclosing his disqualification.

On 8 August 2017, the AAT affirmed ASIC’s decision and Mr Zivanovic then appealed the AAT’s decision to the Federal Court.

On 17 May 2018, the Federal Court dismissed Mr Zivanovic’s appeal that will disqualify him from managing corporations until 18 February 2019.

While it is great that ASIC has the power to disqualify a director, it is concerning to think that someone involved in 18 failed companies with a total creditor debt of $26 million could continue for as long as they did and that the period of disqualification was only three years and not the maximum five-year period.

For more information on director disqualification or to seek advice on a specific situation, please contact your local Worrells partner.

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