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Responsibilities of Company Directors

Date:
By  Stephanie Oakley
Category: Business

Each year the Australian Securities and Investments Commission reports on the number of reported possible misconducts by Directors. From the findings, 47% of the alleged breaches related to financial matters being; the failure to keep appropriate financial records (19.2%) and trading whilst insolvent (27.8%).

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Directors obligations to keep sound financial records

The Corporations Act in s286(1) states that a company must keep written financial records that:

  • correctly record and explain its transactions and financial position and performance, and
  • would enable true and fair financial statements to be prepared and audited.

 

Financial records are defined in s9 of the Corporations Act as including:

  • invoices, receipts orders for the payment of money, bills of exchange, cheques, promissory notes and vouchers
  • documents of prime entry, and
  • working papers and other documents needed to explain:
  • the methods by which financial statements are made up, and
  • adjustments to be made in preparing financial statements.

 

Financial records may be kept electronically and there are numerous accounting software packages available for this purpose. Section 288 of the Corporations Act states that if financial records are kept in electronic form, they must be convertible into hard copy.

 

If you are a director in a company and you do not have sound financial records, we will be able to help you implement a modern process of record keeping.

 

Trading whilst insolvent – 5 Signs you may be trading insolvent

  1. You are unable to meet your GST, PAYGW and Income tax liabilities
  2. You are not paying your employee superannuation contributions on time or at all
  3. You are not meeting the terms set by your suppliers and receive creditor letters
  4. You are self-funding the business, by drawing on personal loans or from equity in personal assets
  5. You have low stock turnover, or you have old stock which you are unable to sell.

 

The ramifications for trading insolvent under Section 588G of the Corporations Act 2001 (Cth) (Act) are significant and may result in large fines or even imprisonment. Further, there is opportunity for the liquidator to seek recompense from you personally through civil proceedings.

 

If you are having cash flow issues and would like to talk to somebody, please contact Jason Bartlett or Barrett Campbell.

 

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