Of course, the bottom line is that all
directors of an Australian-incorporated company must comply with directors'
duties under Australian law (Corporations Act and common law). This can be more
difficult for an Australian-resident director of a foreign-controlled and
managed company – particularly if you are not fully involved in the board-level
decision-making, because it takes place offshore.
If you are an Australian director in
these circumstances, you may have a limited role in the management of the
company. Your appointment may have been based on sales experience or some other
specific expertise. However, you may be expected/inclined to undertake activities
outside your expertise, simply because you are the only (or the most senior)
person 'on the ground' in Australia. For example, Australian-resident directors
would typically be involved in banking arrangements and may also be involved in
tax (likely being the public officer) and accounting matters, perhaps without
significant tax/accounting expertise.
You should be wary of this type of role 'scope creep' – being the sole director in Australia
should not mean taking on obligations without appropriate experience or
Eight tips for directors in this situation
liability protections are available – get them:
we recommend you require the company to obtain D&O Insurance (this covers
you for some director conduct), provide you with an indemnity (so the company
pays if you suffer certain losses in your director role) and grant ongoing
access to documents (you may need this access after your directorship ends).
That said, offshore owners/directors may be unfamiliar with these protections
and/or be unwilling to implement them – so be prepared to do some advocacy and
negotiation to achieve a level of protection you are comfortable with.
Make sure you attend and participate in
board meetings and are actively involved in board decision-making.
Inform yourself about your fellow board
members, as well as the executives and senior management of the company
(regardless of their location).
informed and meet your directors' duties:
Ensure you have
access to review and scrutinise all company information available to the
overseas board members. You should be across the company's governance,
compliance, management and operational systems. You should understand your
directors' duties and be vigilant in meeting those duties. As the only director
'on the ground' in Australia, you are likely to be the first person the
corporate regulator looks to if there are any issues (insolvent trading etc.).
your duty of care and diligence:
Resist any temptation (or
pressure) to simply 'sit back' and let everything be taken care of offshore.
You should be proactive – remember, you have a duty to act with care and
diligence in your director role.
leverage = higher risks:
All directors have a duty not to
allow the company to trade while insolvent or to trade in a way that will make
it insolvent. If a company is highly leveraged, this can increase the risk
profile in terms of the insolvent trading directors' duty. In this scenario, it
is even more crucial for you to ensure you are fully informed and vigilant in
meeting your directors' duties.
It's easy to imagine you would be 'first in
line' if a regulator brings a directors' liability action under an Australian
regulatory regime (e.g. taxation, OH&S, Australian Consumer Law or
environmental regulatory regimes). You should ensure the company takes
appropriate legal advice regarding the key Australian regulatory regimes
relevant to the company's activities. You should also ensure that
appropriate, Australian-specific compliance systems exist (e.g.
policies/procedures in place and compliance is monitored and enforced). While
the Australian company may utilise global systems, it will be crucial for you to
ensure that Australian-specific regulatory issues are considered and
specifically addressed where necessary.
- Beware of 'blending':
There can be a tendency for decision-making and information regarding the
Australian company to be 'blended' in some way with the broader, offshore
corporate group. Usually, it's vastly preferable from a governance and risk
management perspective for decisions to be made using company-specific
information and on a per-company basis (rather than on some looser, group
Disclaimer: The information contained in this e-alert/update is not
advice and should not be relied upon as legal advice. Hunt & Hunt
recommends that if you have a matter that is legal, or has legal implications,
you consult with your legal adviser.