Some of you may have heard about the Centro case, where a court found one of the nation's highest-calibre boards should have disclosed multi-billion dollar liabilities before signing off on the accounts.

The Federal Court on Monday ruled that Centro's eight-person board had breached the Corporations Act when it failed to disclose several billion dollars worth of short-term liabilities.

In his judgment, Justice John Middleton stressed that the eight directors did not act dishonestly but instead found that they "failed to take all reasonable steps required of them".

ASIC chairman Greg Medcraft said the ruling sent a warning to board members of all companies.

Here is a general guide about your company and the law:

If you’re a director or secretary of a small company, you must follow the requirements set out in the Corporations Act 2001 (Corporations Act). Even if you appoint an agent to look after the company’s affairs, you—not the agent—may still be held responsible for those legal obligations.

What does the law expect of you personally?

As a director, you must:

• Be honest and careful in your dealings at all times
• Know what your company is doing

• Take extra care if your company is operating a business because you may be handling other people’s money
• Make sure that your company can pay its debts on time
• See that your company keeps proper financial records
• Act in the company’s best interests, even if this may not be in your own interests, and even though you may have set up the company just for personal or taxation reasons, and

• Use any information you get through your position properly and in the best interests of the company. Using that information to gain, directly or indirectly, an advantage for yourself or for any other person, or to harm the company may be a crime or may expose you to other claims. This information need not be confidential; if you use it the wrong way and dishonestly, it may still be a crime.

If you have personal interests that might conflict with your duty as a director, you must generally disclose these at a directors’ meeting. This rule does not apply if you are the only director of a proprietary company.

What work must a director do?

You and any other directors will control the company’s business. Your company’s constitution (if any) or rules may set out the directors’ powers and functions.

You must be fully up-to-date on what your company is doing:

• Find out and assess for yourself how any proposed action will affect your company’s business performance, especially if it involves a lot of the company’s money.
• Get outside professional advice when you need more details to make an informed decision.
• Question managers and staff about how the business is going.
• Take an active part in directors’ meetings.

Only be a company director or a company secretary if you are willing, able and have enough time to put in the effort.

Avoid any company where someone offers to make you a director or secretary on the promise that ‘you won’t have to do anything’ and ‘just sign here’. You could be exposing yourself to many legal liabilities.

What happens to dishonest directors?

Every year, the courts send dishonest and reckless company officers to prison, and impose heavy fines and award damages. ASIC is the company watchdog that investigate corporate crime. You can report dishonest company directors to them. They may take a number of steps against directors who fail in their duties.

What company records must you keep?

As a director, the law makes you personally responsible for keeping proper company records.

You must see that the company keeps up-to-date financial records that:

• Correctly record and explain its transactions (including any transactions as a trustee), and
• Explain the company’s financial position and performance.

All companies must have financial records so that:

• True and fair financial statements of the company can be prepared if needed
• Financial statements can be conveniently and properly audited if necessary, and
• The company can obey the tax laws.

If your company is a ‘small proprietary company’ or a small company limited by guarantee (as defined in the Corporations Act), it will generally not have to prepare formal financial reports under that Act each year and lodge them with ASIC.

However, you must still keep financial records, and may need financial reports for managing and monitoring your company’s financial position and performance for tax purposes or for raising finance.

In most cases, large proprietary and public companies—even not-for-profit public companies—will have to prepare financial reports, have them audited and lodge them with ASIC.

Some public companies limited by guarantee are exempt from these financial reporting obligations and others have reduced auditing and reporting obligations.

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