Minimising personal liability risks of company directors
Company directors should adopt risk protection measures to minimise their personal liability risks, according to Brisbane professional services firm BDO Kendalls. BDO Kendalls partner, Eddie Chung, says that company directors are exposed to a number of liabilities imposed by a dizzying array of tax legislation, the Corporations Act and even the Crimes Act. "These laws are in place to encourage directors to ensure that their companies will meet their obligations," Mr Chung says. "This, in turn, affords protection to those who may be affected by acts undertaken by companies in their day-to-day operations."
Mr Chung says that there are a number of ways that directors can minimise their exposure to liabilities, including restructuring their personal assets, taking out liability insurance and considering `knowledgeable governance';. "Knowledgeable governance, which is wide ranging, is perhaps the best form of risk protection," Mr Chung says. "It may be as simple as ensuring that all major decisions made by the board are duly recorded, keeping a personal copy of board minutes and papers and understanding the financial affairs of the company. "Directors should also be aware of the major transactions entered into by the company." Mr Chung says it may be possible for a director to transfer personal assets to an entity such as a family trust that may provide some protection against potential future liabilities, preferably before they accept the appointment. 2 "Directors should consider their personal affairs on a case-by-case basis, taking into account the commercial, legal and taxation implications of such restructuring," Mr Chung says.
Mr Chung says that directors can consider adopting the `defensive'; measure of taking out a directors'; liability insurance policy. "It may also be prudent to find out if the company has a policy of indemnifying its directors from personal liabilities incurred in the course of carrying out the duties associated with the directorship," Mr Chung says "In particular, it is important to understand the circumstances under which the insurance policy or indemnification will provide relief."