If my company has bad debt as a director am I liable?

Insolvency is where a company can no longer pay their bills. In Australia an insolvent company is a company that is not following the Corporation Act, which states that the company must be solvent in order to be trading.

Violating the Corporation Act potentially means trouble for the director of the company. You see when you are the director of the company you are have to make sure the company follows all applicable laws. You also have to make sure that things are going well for the share holders or creditors as part of your duty. It really means that you have to make sure that everyone's interests are protected.

To operate within the Corporations Act you must ensure you do this otherwise you could become personally liable especially if the company goes bankrupt. What happens is the ASIC can charge you compensation proceedings that equal the amount the creditors lost. If you violate the Corporation Act you can be fined up to $200,000.

It is crucial in this period that as a Director you do your best to make sure that everyone's interests are protected, stay in contact with what is happening financially with the company and creditors and act as with complete honesty and integrity and you may be able to use this as a defense in order to not have to pay the civil and proceedings charges.

On top of this the director might also be held personally accountable if taxes of the company are not paid. The goverment will come after the company in the situation that the company does not pay its taxes, but if the company has nothing that can be redeemed the goverment can actually make the director liable because he did not do his job and make sure the company paid its bills and taxes.

As a director thee are a few things that you can do to protect yourself. First you must always be sure to act honestly on behalf of the company and everyone who has interests in the company. On top of that, make sure the company can always pay their bills and their taxes, and if there are any problems, be sure to get financial and legal advice. If you believe that the company is near insolvent or is insolvent, stop trading so that you do not violate any laws. It is recommended that you consult with a financial expert to do what is in the best interest of everyone.

Please note that if you are operating as a director and you become bankrupt then you must appoint a new director. A director is not allowed to act if they have received a personal bankrupt.