Ensuring that your company maintains proper financial records and that you inform yourself as to the company’s financial position is vital.
Recently, the Commissioner of Taxation sought a statutory indemnity from directors of a Company under the Corporations Act 2001 (Cth) (‘The Act’) because amounts paid had been applied to the Company’s tax obligations.
The Company’s director attempted to rely on statutory defences under the Act and
- He had reasonable grounds to expect that the Company was solvent and would remain solvent even if it made the payment.
- He had reasonable grounds to believe that competent and reliable persons (an
accountant and internal employee) were responsible for providing him with adequate financial information about solvency.
The director had been concentrating on developing income streams for the Company
and he “thought” others were looking after the financial side of things.
The NSW Supreme Court held that the “financial records of the company were in
an unacceptable state”, and that because of this, no reasonable grounds were established on which the director could reasonably expect that the Company was solvent: he was Ordered to pay $70,000.00.
It is important that:
- good financial records be maintained to monitor the company’s solvency.
- directors must read, understand and inform themselves as to the company’s financial position.