Corporate & Business Governance

Appointing directors

Any adult who submits consent to act to the company stating he or she understands the legal obligations surrounding their role may be appointed a director unless they:-

• have a fraud or dishonesty conviction in the last 5 years;
• are bankrupt or under a personal insolvency arrangement.

Prudence demands that any person considering such an appointment to be aware of the financial position of the company and satisfy himself or herself that it its compliance obligations are not delinquent.

What duties does a director assume?

Even though the duties of directors may be divided under the terms of a Shareholders Agreement, each director has legal obligations in relation to a company’s management and operation.

For private companies, the major duties lie in compliance and solvency.

Apart from making sure returns and notices are lodged promptly with ASIC, the following are some of the company’s duties for which a director takes responsibility:-

• the keeping of proper financial records;
• ensuring the Company does not engage in misleading and/or deceptive conduct eg in relation to financial services contrary to s 12DA and 12DB of the ASIC Act as defined in Section 766A of the Corporations Act;
• ensuring “continuous disclosure” of all financial and other information about the company’s affairs.

Prudence demands that any person considering such an appointment to be aware of the financial position of the company and satisfy himself or herself that it its compliance obligations are not delinquent.

Solvency

The annual statement each company is required to lodge within two months from its annual review date must include a solvency resolution by the directors stating that the company is able to pay its debts as they are due.

The directors must have a reason for making a “positive” solvency resolution. If not they should make a ‘negative’ solvency in which case a Form 485 (Statement in relation to company solvency) must be lodged to ASIC within 7 days of the negative solvency revolution being made.

If your company becomes insolvent – ie unable to pay debts as they fall due – it must cease trading immediately. Call or contact our corporate Lawyers today.

Notifications to ASIC

The annual statement each company is required to lodge within two months from its annual review date must include a solvency resolution by the directors stating that the company is able to pay its debts as they are due.

Directors’ meetings

The frequency and manner in which meetings of directors are to be held are usually provided for in the Shareholders Agreement. In practice, directors often meet informally. It is nevertheless important for resolutions to be drafted, circulated, and signed for inclusion in the company secretarial documents.

Such resolutions may be called upon by the company’s financiers so they can be satisfied that a proposed course of action has been duly authorized.

General meetings

General meetings are meetings of the members (shareholders) usually to accept the annual accounts and resolve to pay dividends.

Corporations Act s 249C provides a “replaceable rule”:-  A director may call a meeting of the company’s members.

Corporations Act s 249F (1) also permits the calling of a general meeting by:-

Members with at least 5% of the votes that may be cast at a general meeting of the company may call, and arrange to hold, a general meeting. The members calling the meeting must pay the expenses of calling and holding the meeting.

The Constitution of a company may prescribe other means by which a general meeting may be called.

If a single director wishes to requisition a members’ meeting, he would normally send a notice to that effect to the company secretary expressed to be pursuant to Corporations Act s 249C requiring the secretary to send notices to every shareholder relating to the general meeting.

If the members holding at least 5% of the votes wish to requisition a members meeting, they would do likewise, expressing their notice to be pursuant to Corporations Act s 249F.

In either case, the secretary would then issue a Notice of General Meeting. At least 21 days’ notice of the general meeting must be given (unless members to with at least 95% of the votes that may be cast agree beforehand to a shorter period).

Corporations Act s 249J specifies the manner of giving notices to members.

Members may attend in person or by proxy.

Unless otherwise stated in the Constitution, a quorum of at least two members is required at a meeting for a company.  When voting for an ordinary resolution, a majority vote (usually more than 50%) is required for it to pass. A special resolution, however, requires over 75% of the votes to pass.

Special resolutions

Some resolutions eg change of a company name or type, or the change of rights pertaining to a particular class of shares may require a special resolution.

Notification of particulars of the proposed special resolution must be contained in the notice of meeting sent to members. A majority vote of 75% is required to carry out a special resolution.

Once the special resolution has been passed, documents specific to your change such as Form 205 (Notification of resolution) and meeting minutes will need to be lodged with ASIC.

[/su_spoiler] Meetings can in most case is being held without members or directors being physically present at the one location. The applicable methodology for such meetings is contained in the company’s constitution or the relevant Replaceable Rule.

Record keeping

The Corporations Act requires that a company must keep written financial records that:

• correctly record and explain its transactions and financial positions and performance, and
• enable a true and fair review of the company’s financial position.

To comply with this requirement, the company must retain financial statements, meeting minutes, invoices, bank statements, deeds, and general ledgers and journals for seven years.

A share register is required to be kept.  The register must show specific details of each member including name and address, the date they were added to the register, the number of shares they hold, and whether their shares are beneficially held. The register must include information regarding shares including the date of issue, the number of shares in each allotment, the class of shares and if applicable the share numbers and whether the shares are fully paid.

Virtual meetings

Meetings can in most cases be held without members or directors being physically present at the one location. The applicable methodology for such meetings is contained in the company’s constitution or the relevant Replaceable Rule.

Record keeping

The Corporations Act requires that a company must keep written financial records that:

• correctly record and explain its transactions and financial positions and performance, and
• enable true and fair review of the company’s financial position.

To comply with this requirement, the company must retain financial statements, meeting minutes, invoices, bank statements, deeds and general ledgers and journals for seven years.

A share register is required to be kept.  The register must show specific details of each member including name and address, the date they were added to the register, the number of shares they hold and whether their shares are beneficially held. The register must include information regarding shares including the date of issue, a number of shares in each allotment, the class of shares and if applicable the share numbers and whether the shares are fully paid.

Personal liability of directors

It is possible for a director of a company to be held personally liable not only for their actions but also for the debts and losses of the company.

The circumstances where a director may be personally liable include:

• Insolvency debts – trading while insolvent
• Director’s breach – losses arising from a “purposeful” breach of director’s duty