If you hold a position as a Director or Officer within a company, you are legally responsible for managing the company’s business activities.
When that company is responsibly managed in line with the legal obligations outlined in the Corporations Act, then directors and officers are not personally liable if the company subsequently has financial or regulatory issues. However, if the company has not been responsibly managed and large debts accrue which lead to financial difficulty, the Directors and Officers may be liable, legally and financially, for the debts incurred.
KNOW YOUR OBLIGATIONS: WHEN DIRECTORS AND OFFICERS BECOME LIABLE
According to ASIC’s guidelines, there are some circumstances where directors and officers who breach the law can become personally liable for the company’s debts and / or be the subject of other regulatory action.The key areas of potential personal liability for you as a Director or Officer are:
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If you act as a guarantor or provide security over personal assets.
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Employment actions for wrongful dismissal, discrimination or harassment.
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Other regulatory action that might be taken against you – Work Health and Safety Laws etc.
CONSEQUENCES OF FAILING TO PERFORM YOUR DUTIES AS A DIRECTOR OR OFFICER
If you fail to perform your duties as a director or officer, you may:
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Be guilty of a criminal offence with financial penalties or imprisonment (or both).
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Have contravened a civil penalty provision (and the court may order you to pay a fine).
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Be personally liable to compensate the company or others for any loss or damage they suffer.
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Be prohibited from managing a company.
WHY TAKE OUT DIRECTORS' AND OFFICERS' INSURANCE?
Directors and Officers, plus individuals acting in a managerial or supervisory capacity (including employees who make decisions that affect the whole, or a large part of the business of their company, or have the capacity to affect significantly the financial standing of the company), face the real threat of incurring personal financial liability as a result of their actions in the work arena. The types of legal action that are commonly brought against individuals in their role as a company Director or Officer include; those by shareholders, regulatory authorities, creditors, customers and employees.Directors' and Officers' cover will protect you against personal liability across a range of circumstances, including those outlined below. However, you will need to ensure that your insurance provider meets your unique individual and organisational needs before committing to purchasing a policy.
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Directors sued over allegedly misleading statements to the public as to the financial position of the company.
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Regulatory authorities investigating and prosecuting Directors over the same statements.
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Creditors and customers taking action against Directors for insolvent trading.
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Employees bringing claims for wrongful termination of employment, failure to employ, discrimination, harassment, or invasion of privacy.
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Directors being sued/prosecuted for breaches by the company of WH&S legislation.
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Class action suits against Directors by disgruntled shareholders and investors.
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Directors and Officers being sued for alleged misuse of confidential or copyrighted information.
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Directors being prosecuted for breaches of the Corporations Act.
Your role as a company director or officer can be a highly rewarding aspect of your career. However, it is imperative that you protect yourself with the right type of insurance cover in case things go wrong.
Find out more about Imalia's My Company Directors and Officers Cover.
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