The Australian Securities and Investments Commission (ASIC) has taken decisive action to safeguard small businesses by disqualifying four directors from managing corporations. Between January 1 and March 31, 2024, ASIC banned these directors following their involvement in the collapse of multiple small proprietary companies, leaving numerous creditors, including the Australian Taxation Office (ATO), unpaid. Some directors were also implicated in illegal phoenix activity and misappropriation of company funds.
Impact on creditors and small businesses
The directors’ failures to meet their obligations to the ATO, employees, and other creditors gave them an unfair advantage over other small companies. Such mismanagement often forces small businesses to shut down, exacerbating financial strains on the broader economy. By disqualifying these directors, ASIC underscores the consequences of corporate mismanagement, aiming to protect employees, creditors, and the public from future financial misconduct.
Details of disqualified directors
Person A
Industry: Textiles
Location: Penrith, NSW
Disqualification Period: 1 year (until February 5, 2025)
Misconduct: Poor management leading to the failure of three small proprietary companies, with a combined debt of $1,487,009 to unsecured creditors, including the ATO.
Person B
Industry: Engineering and Mining Services
Location: Brisbane, QLD
Disqualification Period: 2 years (until February 11, 2026)
Misconduct: Involvement in the collapse of four small proprietary companies, owing $4,885,034 to over 50 unsecured creditors, including the ATO. $52,043 was owed for unpaid wages and employee leave entitlements, and $23,173 to Fair Entitlements Guarantee (FEG) for payments made to former employees.
Person C
Industries: Hospitality, Construction, Cleaning, Electrical
Location: NSW
Disqualification Period: 5 years (until February 14, 2029)
Misconduct: Linked to the failure of seven small proprietary companies, resulting in $3,723,402 in debts to unsecured creditors, $547,346 to Revenue NSW, and $23,246 in unpaid employee superannuation.
Person D
Industry: Construction
Location: South Coogee, NSW
Disqualification Period: 4 years (until February 26, 2028)
Misconduct: Involved in the collapse of eight small proprietary companies, accumulating $33,357,590 in unpaid debts, including $13,768,044 to the ATO, $1,315,513 to the Workers Compensation Nominal Insurer, and $1,794,824 to the Office of State Revenue.
Role of the Assetless Administration Fund
ASIC’s disqualification of these directors relied on supplementary reports from liquidators funded by the Assetless Administration Fund. These liquidators provided crucial evidence on the directors’ mismanagement, facilitating ASIC’s enforcement actions.
Legal framework and review process
Under Section 206F of the Corporations Act 2001, ASIC can disqualify a person from managing corporations for up to five years if, within a seven-year period, they have been an officer of two or more companies that were wound up and unable to pay their debts. This action is based on reports from registered liquidators and information from ASIC’s Request Assistance for External Administration (RAEA) program. Directors can appeal ASIC’s decisions to the Administrative Appeals Tribunal, although to date none of the above disqualified directors have pursued this option.
ASIC maintains a register of banned and disqualified persons, providing transparency and accountability in corporate governance. This register includes individuals barred from corporate management, auditing self-managed superannuation funds (SMSFs), or practicing in the financial services or credit industry.
Importance of professional advice
ASIC advises company directors to seek trusted professional guidance if they are uncertain about their legal obligations or have concerns about their company’s financial health. Professional advice can help prevent mismanagement and ensure compliance with legal standards, promoting a healthier business environment.
Key takeaways
ASIC’s decisive actions against the four directors highlights the importance of responsible corporate governance and the consequences of mismanagement. By disqualifying these individuals, ASIC aims to protect creditors, employees, and other small businesses from financial misconduct that can destabilise the economy. This enforcement serves as a stern reminder that directors must adhere to their legal obligations and seek professional advice where appropriate.
