Director’s Obligation
Generally, directors have an obligation to assist the external administrator by:
- advising the external administrator of the location of company property and delivering any property in their possession to the external administrator;
- providing the company’s books and records to the external administrator (voluntary administration and liquidation) or giving access to the books and records to the external administrator (receivership);
- advising the external administrator of the whereabouts of other company records;
- providing a written report about the company’s business, property and financial circumstances within either 5 business days (voluntary administration) or 7 days (liquidation); and
- meeting with, or reporting to, the external administrator to help them with their enquiries.
Directors, officers and other people with relevant books and records also have a responsibility to the company and to creditors and must not obstruct external administrators in carrying out their duties.
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Director’s powers
Directors of companies in voluntary administration or liquidation lose control of the company. If a company goes from voluntary administration into a deed of company arrangement, the powers of the directors depend on the deed’s terms. When the deed is completed, the directors regain full control unless the deed provides for the company to go into liquidation on completion.
In a receivership, the powers of the directors depend on the powers of the receiver, as detailed in the charge document, and the extent of the assets over which the receiver is appointed. If the receiver is appointed over all or most of the assets of a company, the receiver effectively has control although the directors still have certain responsibilities and duties and may retain residual control.
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Does a Director have to attend the Creditor’s Meeting?
Meetings of creditors are held in voluntary administrations and liquidations. Both a voluntary administrator and liquidator can require a director to attend a creditors’ meeting to provide information about the company and its business, property, affairs and financial circumstances.
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Will a Director be disqualified by the regulator?
If a director has been involved with two or more companies that have gone into liquidation within the last 7 years and paid their creditors less than 50 cents in the dollar, the regulator may disqualify them from managing corporations for up to 5 years. This effectively bans a person from acting as a director. They can also apply for orders disqualifying a person from managing corporations for up to 20 years if they have been an officer of two or more companies that have failed within the last 7 years and the way in which the companies were managed contributed to the failures.
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Will a Liquidator require a public examination of the Directors?
A voluntary administrator or liquidator has the power to apply to the court to conduct a public examination under oath of a director. Being summonsed to appear for a public examination is a serious matter and should not be ignored. Seek immediate legal advice if you are in any way concerned about the public examination process or your rights. The external administrator conducting the public examination may be interested in your personal financial position or further details about assets or transactions the company undertook. Often the need for a public examination can be avoided by cooperating with the external administrator.
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