The Australian Securities and Investment Commission’s (ASIC) power to disqualify directors is not a power to be overlooked.

What is ASIC’s disqualification power?

Under section 206F of the Corporations Act 2001 (Cth), ASIC has the power to disqualify a person from managing a corporation for up to 5 years where that person has acted as an officer of two or more companies in a 7 year period, that have been wound up and a liquidators report provided verifying the company was unable to pay its debts.

Gabay and Anor and ASIC [2014] AATA 425

In a recent appeal to the Administrative Appeals Tribunal of Australia (Tribunal), Gabay and Anor and ASIC [2014] AATA 425 (27 June 2014), the Tribunal upheld a disqualification imposed by ASIC under section 206F of the Corporations Act 2001 (Cth), on two directors of a series of companies in the Beacon Group.

Why were the directors disqualified?

Mr Gabay and Mr O’Neil, were disqualified on the basis that:

1. one or more of the companies in the Beacon Group were trading insolvent. This is something that Mr Gabay and Mr O’Neil should have been aware of;
2. neither of the directors familiarised themselves with the keeping of accurate financial records, therefore failing to discharge their duties with a degree of care and diligence;
3. the management of the business and property of the companies indicated a serious lack of degree of care and diligence;
4. they did not involve themselves in the exercise of their role as directors, even in a supervisory capacity.

Mr Gabay was disqualified for a period of 18 months, and Mr O’Neil was disqualified for a period of one year.

What is the purpose of ASIC’s disqualification power?

Section 206F directs attention to whether:

1. disqualification is justified as the consequence of the person’s conduct in relation to the management, business or property of a corporation;
2. the disqualification is in the public interest; and
3. any other matters considered appropriate.

The Tribunal noted that ASIC’s power to disqualify is a protective power, and is exercised by ASIC to protect the public interest.

Are you at risk of being disqualified?

If you have been a director or secretary of two or more companies that have been wound up and found to have been unable to pay its debts, in the past 7 years, you are at risk of disqualification.

If you are at risk of disqualification it is imperative that you are carrying out your directors duties and properly managing the business and any property of the company.

If you require more information in relation to directors duties, and what steps you should be taking to avoid disqualification, please do not hesitate to contact me.