Under certain conditions, directors may be personally responsible for company debts when they face insolvency, and regulatory action can be taken against them. The answer to the question, “Are directors liable for company debts?” depends on the specific circumstances and actions of the director.
Once a company is registered, its legal status as a separate entity remains until deregistration. A director’s obligations may continue even after a company has ceased trading and been deregistered.
Directors can be personally liable for company debts if the company becomes insolvent and unable to meet its financial commitments. A key responsibility of a director is to ensure that the company does not continue to trade while insolvent. Signs of insolvency include poor cash flow, trouble paying creditors, and legal actions from suppliers.
To assess the financial health of the company, among the director’s duties is to evaluate the company’s cash flow and ability to sell assets to meet outstanding debts. Allowing the company to trade while insolvent can lead to civil and criminal penalties under the Corporations Act.
Furthermore, directors may be liable for company losses if their breach of duties causes financial harm. In these cases, directors could be required to compensate the company for the damage caused. Liability may persist even after the company ceases trading or has been deregistered.
The Australian Taxation Office (ATO) holds directors accountable for certain unpaid taxes under the Director Penalty Regime. A director’s liability may include tax obligations such as Pay As You Go (PAYG) withholding and Superannuation Guarantee Charge (SGC) contributions. Failure to meet these obligations can result in penalties equal to the unpaid amounts.