ASIC is reminding small business company directors that they must manage company money and assets in the best interests of their company.
Misuse of company money and assets for personal gain can lead to companies being unable to pay their debts, which can harm other small businesses who are creditors.
The reminder follows recent action that has been taken against company directors following ASIC investigations.
Legal obligations and why they matter
Company directors have legal obligations to ensure they act in good faith in the best interests of the company and to not improperly use their position to gain an advantage. They must consider the interests of the company as a whole which may involve considering the interests of shareholders, customers, suppliers, employees and other stakeholders.
Misuse of a company's money and assets can lead to a company not being able to pay its debts. This can cause significant harm to the community (through unpaid tax debts), employees, customers and suppliers. The impacts can be particularly devastating for small businesses creditors as the disruption to cash flow can impact their own ability to cover expenses and pay suppliers.
In 2023-24, poor financial control, which can include misuse of company assets for personal purposes, was a cause of failure for 36 per cent of companies, according to reports lodged by registered liquidators.
How company directors can make sure they get it right
Actions that company directors should take to make sure they meet their obligations when dealing with company assets and money include:
- Remembering that it is company money, not their personal money: company directors cannot treat company property, assets or funds as if they are their own. For example, company funds can't be used to pay for school fees or holidays.
- Considering the interests of their company as a whole when making decisions about company assets and money: company directors have a legal obligation to act in the best interests of their company. This includes paying small business creditors, employees and tax debts when due.
Consequences of getting it wrong
ASIC does not hesitate to investigate and take action where company directors breach their obligations by misusing company assets, especially when those breaches cause harm to other small businesses. We are focussed on protecting small businesses and ensuring that there is a level playing field.
In the first three months of 2025, as a result of ASIC investigations:
- a director of two construction-related companies appeared in court charged with dishonestly using her position as a director to gain an advantage for herself. It is alleged that she transferred company funds to a credit card and other accounts and used the funds for her personal use. The two companies subsequently went into liquidation, with one of these owing money to small businesses which has not been repaid (refer 25-011MR).
- a director of a beverage distribution company was found guilty by a court of dishonestly using his position to gain an advantage by using company funds to pay legal fees and other costs to annul his personal bankruptcy (refer 25-038MR).
Company directors may face civil and criminal penalties if they breach their legal obligations. They may also be disqualified from acting as a director of a company.
In addition to ASIC investigations and enforcement action, there may be other consequences. For example:
- The Australian Taxation Office takes action against directors personally in some cases for unpaid company tax debts.
- If a company goes into liquidation, the liquidator will investigate the reasons for the collapse of the company. If the liquidator believes that a director has breached their obligations, they may sue the director seeking compensation. ASIC supports liquidators by prosecuting directors who fail to assist liquidators, including by providing books and records. For the period of 1 January 2025 - 31 March 2025, ASIC prosecuted a total of 34 individuals for 67 offences in failing to assist registered liquidators, with a total of $244,500 in fines and $4,360 in costs.
Further information
ASIC encourages company directors to seek professional advice if they are uncertain about their legal obligations or have concerns about the company's finances. It is important to seek this advice early to avoid trouble.
In addition, ASIC's website has a small business section, which contains information to assist small business company directors in understanding their obligations as company directors.
