One of our recent On the Pulse articles covered directors' ongoing duties during the course of a liquidation. Director duties in a liquidation | Worrells, but we commonly observe directors failing to comply with their statutory duties that all directors have when in control of a company, and particularly in the lead-up to an insolvency appointment.
ASIC has recently launched a refreshed Small Business Strategy and a new Small Business Director Essentials Hub designed to help directors better understand and meet their obligations throughout the lifecycle of their company.
The new online resource brings together practical guidance, educational materials and interactive learning tools in one location. It includes a director roadmap covering key stages of running a company, from establishment and growth through to closure, along with guidance on director responsibilities, corporate governance and responding to financial difficulty.
ASIC's initiative responds to research indicating many small business directors want clearer and more practical information about their obligations. Importantly, the regulator has identified a need to help directors recognise warning signs earlier and seek advice before financial problems escalate.
For insolvency practitioners, accountants and advisers, this focus on education is particularly welcome.
At Worrells, one of the recurring themes we encounter across corporate administrations, liquidations and restructuring appointments is that many directors do not fully understand the extent of their duties, particularly when a company is experiencing financial difficulty. Unfortunately, by the time professional advice is sought, decisions have often already been made that expose both the company and the directors to significant risk.
It is not uncommon for transactions to occur in the period leading up to an insolvency appointment that primarily benefit directors, shareholders or related parties rather than the company's creditors. These transactions may include the repayment of related-party loans, transfers of assets, preferential payments or other dealings that can later be scrutinised and potentially challenged under the Corporations Act.
Directors should remember that their obligations evolve as a company's financial position deteriorates. While directors are generally responsible for acting in the best interests of the company, when insolvency becomes a real possibility there must also be careful consideration of the interests of creditors. Failing to appropriately navigate this transition can result in personal exposure and, in some cases, claims against directors.
The key message is simple: seek advice early.
ASIC's new Small Business Director Essentials Hub is a valuable starting point for small business directors wanting to better understand their duties and responsibilities. The resource can be accessed via ASIC's website (Small business director essentials | ASIC) and provides practical guidance on director obligations, governance and responding to financial distress.
However, education alone is not always enough. When a business is experiencing cash flow pressure, mounting creditor demands, tax debt concerns or broader financial difficulties, obtaining professional advice tailored to the company's circumstances is critical.
Worrells regularly assists directors, accountants and advisers to assess solvency, understand directors' duties, consider restructuring and turnaround options, and navigate formal insolvency processes where necessary. Early intervention often provides more options and can significantly reduce the risk of directors inadvertently breaching their obligations.
If you have clients who may be experiencing financial difficulty or would benefit from understanding their duties as directors, we encourage you to direct them to ASIC's new resources and to seek professional advice as early as possible. The sooner problems are identified and addressed, the more opportunities there are to achieve a positive outcome.
For more information, visit ASIC's Small Business Director Essentials Hub or contact your local Worrells office to discuss your client's circumstances.
