Company Officers – Decision Making and Compliance
Useful for: Business
In Brief
- The Business Judgement Rule provides a level of protection to officers to ensure that they are not penalised for taking reasonable business risks but does not absolve officers from the need for them to be financially literate and engaged and aware of what is going on in the business.
- Officers must ensure they are fully aware of the financial standing of the company to ensure their duty to ensure the company does not trade while it is insolvent.
- Officers can protect themselves to some degree by ensuring the company holds a current Directors and Officers insurance policy and provides them with a deed of indemnity against liability they or the company may incur because of activities/decisions the officers are engaged in in their capacity as officers.
- Insurance (and likely deeds of indemnity) will not protect officers against certain wrongdoing, and never in relation to criminal activity.
- Compliance with the law is more than just ensuring the Corporations Act is complied with. A number of statutes impose duties and obligations on companies that cannot be contracted out of and breach of which can result in civil and/or criminal charges and penalties being imposed by a regulator, and/or result in significant civil liability to third parties that the breach affects.
- Compliance with law and good governance march together. Ensure your company puts in place appropriate risk management tools, internal governance policies and procedures relative to the size and stage of your business and ensure that laws are monitored for changes (some statutory requirements apply when a business reaches a certain turnover, employs a certain number of staff, or operates in a certain way).
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