As a director, your responsibilities don’t end when your company ceases trading. Even after a business stops operating or is deregistered, you may still be personally liable for certain obligations. This includes situations where the company has debts or becomes insolvent.
If a company is insolvent—meaning it can’t pay its debts as they fall due—directors can be held accountable. Signs of insolvency often include low cash flow, delayed payments, and legal action from creditors. Directors are legally required to assess the company’s financial position regularly to determine if insolvency is a risk. Failing to take timely action can lead to personal liability for unpaid debts.
Directors can also face personal liability for company losses if they breach their duties. This could lead to civil penalties, criminal charges, or even disqualification from managing companies in the future. Breaching director duties includes failing to act in the company’s best interests or not meeting the required financial obligations. Under the Director Penalty Regime, directors may be held responsible for unpaid taxes, particularly PAYG withholding and the Superannuation Guarantee Charge. This means that even tax debts can fall on directors personally if not addressed by the company. Additionally, if directors have provided personal guarantees for company loans, they may be liable to repay those loans if the company defaults. Personal assets, such as a home, could be at risk if the company fails to meet its financial obligations. In cases where the company acts as a trustee, directors may also be liable for any breaches of trust or if the company acts beyond its powers.
Finally, directors involved in illegal phoenix activity transferring assets to a new company to avoid paying debts of an old one may face severe legal consequences, including personal liability and criminal charges.
In short, being a director comes with ongoing responsibilities, and personal liability can extend far beyond the active life of a business. Understanding these obligations is crucial to protecting yourself and your assets.
If the information in this article has raised some concerns, speak to a business adviser at Lee & Lee Accountants. We may be able to assist you (or point you in the right direction).