So, you’ve become a director: managing assets, debts, and investments

In our last article, we mentioned that operating via a company can be advantageous as it can limit personal liability in the event of failure.

But as a director, how do you manage assets, debts, and investments?

By operating a corporate entity, it is the company that is generally responsible for paying debts incurred by the company, which may include trade creditors, employees, and statutory bodies such as the Australian Taxation Office (“ATO”).

But importantly, it is also the company that owns the assets, so as a director, you must not treat company property, assets, or funds as your own.

Any money invested in the company, whether through loans or by purchasing shares, belongs to the company, and must be used for legitimate company purposes.

Shareholders are entitled to receive dividend payments, but only after the company has ensured it can meet its debt obligations to trade creditors, other creditors, employees, and statutory authorities.

Failure of the company to pay its debts as and when they fall due can lead to numerous negative outcomes, which range in severity and may include:

• Reputational damage to the business.

• The refusal by suppliers to provide further credit.

• Payment defaults being reported to credit reporting agencies.

• Financier enforcement to recover outstanding loans.

• If renting premises, landlord repossession.

• ATO enforcement, such as garnishee notices or personal liability from a director penalty notice.

• The filing of a court application to wind up the company by a creditor or statutory body.

Our tip

Ask your accountant to assist with cashflow forecasts so that you can budget for peaks and troughs in income and expenditure of the company and regularly review and update these.

A lot to navigate?

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