Insolvency and ASIC: Understanding Your Legal Obligations in Australia

The Australian Securities and Investments Commission (ASIC) plays a pivotal role in regulating corporate behaviour and enforcing financial services laws in Australia. Company directors must be aware of their legal obligations to creditors and shareholders and the requirements of ASIC.

At the Insolvency Advisory Centre, we ensure company directors fully understand their legal obligations when a company is on the brink of insolvency, and this article offers a comprehensive look into these responsibilities.

Duty to Report Insolvency

If a company is trading insolvent or there is a reasonable suspicion of insolvent trading. In that case, the company directors are obligated to prevent further trading and acquiring additional company debt. This duty also extends to notifying ASIC of the company’s financial status and ensuring transparency and protection for creditors and shareholders.

Maintenance of Financial Records

Company Directors are mandated to maintain financial records that accurately reflect the company’s actual financial position. If a company faces insolvency proceedings and ASIC finds that these records are missing, incomplete, or falsified, company directors can face legal consequences and be held personally liable. Some severe penalties and fines can be imposed on company directors.

Obligation to Assist Liquidators

Company directors must fully cooperate with an appointed liquidator or trustee during insolvency proceedings. This includes providing all company books and records. Liquidators and trustees have the authority to report any non-compliance to ASIC, which may lead to further investigations and penalties for company directors.

Director Penalty Notices (DPN)

Suppose a company hasn’t met its PAYG withholding or Superannuation Guarantee Charge (SGC) obligations. In that case, ASIC, in collaboration with the Australian Taxation Office (ATO), can issue a Directors Penalty Notice (DPN) to company directors. This notice can make directors personally liable for these unpaid amounts. At the Insolvency Advisory Centre, we can advise Company Directors on what to do and the legal requirements if they receive a Directors Penalty Notice.

Duty to Attend Creditors’ Meetings

Company Directors are legally obliged to attend meetings if ASIC or the appointed trustee or liquidators call for a creditors’ meeting. They might be required to provide details about the company’s financial affairs and reasons for its failure or clarify other matters. The Insolvency Advisory Centre can help company directors prepare for these meetings and understand their obligations.

Obligation to Lodge Financial Reports

Companies, especially publicly listed ones, are required to lodge regular financial reports with ASIC. If a company is trading insolvent or nearing insolvency, this obligation remains, ensuring stakeholders, shareholders, and regulators have an accurate view of the company’s financial position.

Reporting of Misconduct

Company Directors must report any suspected misconduct or breaches of the Corporations Act. This could relate to fraudulent activity, breaches of director duties, or other unlawful actions that may have contributed to the company’s insolvency.

Notify ASIC of Changes

Directors must promptly inform ASIC of any changes to their personal details, including addresses. If a director plans to leave Australia, they must notify ASIC and obtain permission, especially during insolvency proceedings.

Adherence to Banning and Disqualification Orders

If ASIC finds a director negligent, dishonest, or in breach of their duties, contributing to insolvency, they can issue banning or disqualification orders. Directors must adhere to these, refraining from managing corporations for the specified period.

Help with Insolvency and ASIC

“Engaging with ASIC’s requirements is not merely about compliance; it’s about ensuring that the broader economic ecosystem remains transparent, accountable, and trustworthy. At the Insolvency Advisory Centre, we ensure that Company Directors understand their responsibilities, especially when insolvency looms. As the regulatory landscape can be intricate, seeking advice from our expert team can be crucial to navigating ASIC obligations effectively.”