How long will you be liable for the debts of a company after you resign as a Director?
Once you have resigned as a Director and continued on your life’s journey whether that be at another company or into retirement, you do not want to have creditors knocking on your door chasing debts incurred by the company after you have already left.
Many people are under the mistaken understanding that simply resigning from a company as a Director ceases your liabilities and potential future liability for debts incurred by the company.
Your resignation from the company ceases your responsibility for day to day management of the company however it is possible that even after your resignation you may still be liable for certain company debts if that company is subject to external administration.
Possible Liabilities You May Face Should The Company Be Wound Up:
* Personal Guarantees – if you signed personal guarantees for creditors of the company, you need to make sure that you are removed as a guarantor when you resign to minimize your exposure to debts that the company can’t pay.
* Tax Liabilities – The ATO can issue Director Penalty Notices for unpaid liabilities to the ATO incurred while you were a Director including unpaid GST, PAYG and superannuation contributions.
* Insolvent Trading – Directors can be made personally liable for outstanding debts incurred by a company when it is deemed to be insolvent pursuant to section 588G of the Corporations Act 2001.
* Unreasonable Transactions – a Director can be held liable for causing the company to enter into transactions that unfairly exhaust company assets or which were not in the company’s best interest. Liquidators have the power to review company transactions that date back up to 6 years prior to the commencement of the winding up of the company. Liquidators can pursue directors for insolvent trading within 6 years from the date the liquidation commences. A liquidator can make a claim for Breach of Director Duties for breaching statutory duties such as diligence, care and good faith that have a 6 year limitation period.
You may also be held liable for voidable transactions which include unfair preference payments, uncommercial deals and unreasonable director transactions.
So if you’re planning on stepping away from a company Director role in the near future, contact Ahern Sierakowski for some advice on how best to protect yourself. Email us at info@aslawyers.com.au.
