Whilst a company structure generally protects directors from being personally liable to pay the company’s debts, this is not always the case. Further Directors may be fined personally by ASIC, or may have to pay the companies taxation liabilities such as PAYG or employee superannuation payments.
So, yes it is a good idea to have what is called a Deed of Access and Indemnity.
The deed is a contract between each director and the Company.
It gives the Directors access to the company’s records, payment of legal costs, and requires the company to affect directors and officers insurance, both during the director’s appointment and for a period of years thereafter.
The deed also provides a broad indemnity which means that the Company promises to pay a director for any liabilities and legal costs which arise from being a director of the company. It covers all claims arising from the acts or omissions to the maximum extent permitted by law.
Importantly the indemnity also covers a period of years (normally 6 years) after the director’s appointment has been terminated.
The Corporations Act however limits the indemnity that is provided. Firstly, you cannot be indemnified if you breach your director’s duties as specified in the Corporations Act. For example, if you incur debts when there is no reasonable prospects of the company being able to pay those debts, then you will be personally liable.
The key director’s duties include acting in good faith, acting in the best interests of the company and ensuring the company does not incur debts whilst it is insolvent.
Directors are also responsible to ensure that the company meets its financial obligations to employees, such as paying PAYG tax and paying employee superannuation.
The Deed of Access and Indemnity helps manage your risks as a director, particularly where you have acted in good faith.
At Everingham Solomons, we have the commercial experience to assist you with all of your business needs because Helping You is Our Business.
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