Corporate Governance and Shareholdings

Corporate Governance and Shareholdings

Directors have many duties to their company. A duty of care and diligence, a duty not to improperly use their position to gain an advantage for themselves, a duty not to improperly use company information to gain an advantage for themselves, a duty not to trade their company whilst it is insolvent. The list goes on and it keeps growing. Some of these duties continue to apply after the director leaves the company. In addition, the Australian Taxation Office has a particular way of pursuing directors of companies which have outstanding taxes.

We can assist directors by advising them of the duties that they have and in what circumstances they might be breaching those duties, as well as what liabilities they may be facing and how to avoid those liabilities. We can help directors by suggesting to them ways to work around an inadvertent potential breach of duty so that the relevant goal can be achieved without running the risk of personal liability being brought home to the director.

A director might be thinking about signing a shareholder agreement or a unit holder agreement, or about giving a guarantee in support of the company’s credit supply. Circumstances can arise down the track which can place the director in a position of conflict between their own interests and the interests of the company if such agreements are signed without the input of a legal advisor who can anticipate those circumstances before they arise. We can give such input and make suggestions about how to change those agreements and help the director consider whether the agreement should be signed in its current form, or whether it should be changed before they sign it.

In a small to medium sized company, the distinction between the director’s interests and the interests of the company can become blurred. Loans can be made to the company by the director (and vice versa) on terms that have not been reduced to writing. What are the terms? The director and the company may have a different opinion as to the answer to that question. We can advise on what the terms should be before the loan is entered into.

Sometimes directors fall out with each other. How can one or more directors orchestrate a ‘clean’ exit from the company and avoid potential litigation? We can help. We are aware of the various ways a company can be ‘split’ without the directors breaching their duty to the company and causing an acrimonious situation.

In other times, the interests of the directors and the interests of the shareholders can become blurred as well. This can occur where an employment agreement provides for the employee to receive their bonus by way of company shares being issued to him or her. Care needs to be taken when entering into such an agreement, especially when the employee is actually the director.

We help our clients by explaining the duties of the parties making up the corporate structure, the trading trust structure, and the franchise structure. From time to time, directors become aware of things which impact upon them as individuals but not the company. Sometimes those developments impact upon the directors one way, and upon the company in another way. We can assist the directors in clarifying the proper direction they should take in such circumstances, particularly where those circumstances indicate an apparent conflict.

Where trusts are involved, additional issues arise for the directors. This is because trustees have special duties to the beneficiaries of the trust. This in turn adds to the duties of the directors of the trustee company. We can explain the care with which directors of trustee companies must carry out their duties. We can explain the contents of the trust deed to them and advise how it may impact on the way they manage the trustee company moving forward.

If you have any issues about the way your company should be managed, or whether you as a director might be facing personal liability because of your position as director of your company, then please call us on 02 9570 7844.