In a strong warning to company directors over the past four weeks, Australia’s corporate watchdog has issued several announcements detailing criminal charges or banning orders against those that have failed to act diligently and adhere to their duties and obligations.
We’ve summarised the announcements from the Australian Securities and Investments Commission (ASIC) which outline implications to directors for:
- Breaching their duties
- Making false declarations to ASIC, and
- Being directors of several failed companies.
Breach of duties
On 25 October 2021, ASIC announced that Peter Ross Dunkley had been convicted of breaching his directors’ duties and sentenced to a community correction order to be of good behaviour for a period of twelve months.
Mr Dunkley was the sole director of APD Building Pty Ltd and was found to have dishonestly used his position as a director with the intention of directly or indirectly gaining an advantage for himself or someone else.
This followed invoices being issued by APD Building with instructions that payments be made to a bank account held in Mr Dunkley’s personal name rather than to the company account where the funds could have been used for the benefit of creditors of the company.
APD Building was wound up with liabilities of $1,558,139 owed to 32 unsecured creditors, including $409,534 to the ATO.
At the time of the conduct, a contravention of s184(2)(a) of the Corporations Act 2001 carried a maximum penalty of 2,000 penalty units or imprisonment for five years, or both.
False declarations to ASIC
On 25 October 2021, ASIC announced that Timothy Lee Knight had been charged with making a false or misleading statement to ASIC while a director of Knight & Day Eating Pty Ltd.
In May 2019, Mr Knight lodged a Form 6010 with ASIC to voluntarily deregister Knight & Day Eating, in which he falsely or misleadingly claimed that the company had no outstanding liabilities. It is alleged that at the time Knight & Day Eating had outstanding liabilities of $225,293 owing to Knight & Day PropertyPainting Pty Ltd, which Mr Knight is the sole director of.
Knight & Day PropertyPainting was placed into administration on 10 August 2018, and on 3 September 2018 its creditors resolved that the company be wound up. As a result of the deregistration of Knight & Day Eating, Knight & Day PropertyPainting and its creditors subsequently lost the opportunity to recover debts owed by Knight & Day Eating.
At the time of the conduct, making a false or misleading statement to ASIC contrary to s1308(2) of the Corporations Act 2001 carried a maximum penalty of five years imprisonment.
Director of several failed companies
On 28 October 2021, ASIC announced that Phillip Anthony Royce had been disqualified from managing corporations for a period of two years and six months for his involvement as a director in three companies that went into liquidation between 2015 and 2019.
ASIC’s investigation found that Mr Royce, in his management of two of the failed companies:
- Failed to take reasonable steps to inform himself about, monitor and oversee the companies’ financial affairs
- Disregarded taxation obligations
- Breached his duty to act with due care and diligence and his record keeping obligations, and
- Showed a persistent inability or unwillingness to comply with his obligations as a director.
Section 206F of the Corporations Act 2001 gives ASIC the power to disqualify a person from managing corporations for up to five years if, within a seven-year period, the person was a director of two or more companies that were placed into liquidation with the liquidators lodging reports of alleged misconduct or each company’s inability to pay its debts.
ASIC is Australia’s integrated corporate, markets, financial services and consumer credit regulator. Enforcement action is a key regulatory tool available to ASIC to deter Director misconduct.
The convictions and associated charges demonstrate the important of contacting a restructuring and insolvency advisor if your company is struggling financially. While business turnaround isn’t always an option, an advisor can assist you to meet your duties and obligations and ensure the best outcome for directors and creditors.
If you’re the director of a company that’s struggling financially, please contact William Buck Restructuring and Insolvency.