Directorship is a Serious Business
More and more directors are being held to account for their conduct and whether they have complied with their duties. Some have ended up in jail, and learnt the hard way that other people’s money should be looked after properly.
Now whilst directors of family or small businesses don’t tend to have other shareholder’s monies to look after they do have a duty (under law) of care to customers, suppliers and employees and like it or not, the Government who expects them to act both as tax collectors and a sort of branch “Social Service” (for Child Support and KiwiSaver etc).
These issues tend to surface when a company fails, leaving unpaid creditors, customers who have paid deposits high and dry and an angry IRD. Sometimes this means that directors have to contribute to those who have lost out, maybe leading to bankruptcy or worse!
So what are these duties and obligations?
- Directors of every company must be active. A director who is passive runs the risk that they will be liable for the actions of their fellow directors.
- Directors must be able to understand financial accounts.
- Directors must understand their business.
- Directors must exercise independent thought. For example, reports from managers or advise from outsiders must still be considered, questions must be asked when appropriate.
- Directors must act in the best interests of their company. That does not necessarily mean in the best interests of the directors.
- Directors must act in good faith.
- Directors must not cause the company to take on obligations or debts that they know the company will not be able to pay or most likely will not be able to pay.
Rightly or wrongly, anyone can be a director with no experience or training. With all these obligations in mind, shouldn’t prospective directors be made to take exams or serve a period of apprenticeship?
The debate is open on the A+BAC business community on Facebook. Why not join and have your say?