Australian Resident Director Insights

Insights on Australian Resident Directors

Australian Resident Directors for International Businesses

As international companies look to expand their operations into Australia, one of the critical steps is establishing a local subsidiary that complies with Australian laws and regulations.

As part of this process, it is a regulatory requirement for all foreign companies seeking to establish an Australian subsidiary to appoint an Australian Resident Director and, for a trading or operating company, for the Australian Taxation Office (ATO), a Public Officer.

This article delves into the legal requirements, duties, and responsibilities of local Australian Resident Directors, providing a comprehensive guide for international businesses.

More information on Public Officers

What are Australian Resident Directors?

Australian company law, the Corporations Act 2001, is the primary legislation that governs corporations in Australia. It sets out the rules and regulations that companies must follow, including how they are formed, operate and are dissolved.

The Australian Securities and Investments Commission (ASIC), Australia's corporate regulator which administers the Act, stipulates a company is required to have a minimum number of directors and, for public companies, Company Secretaries.

It requires a Proprietary company to have at least one Australian-resident director, a public company requires a minimum of three directors (two of whom must be ordinarily resident in Australia).

ASIC Minimum officeholders

Who can be an Australian Resident Director?

Company Directors in Australia must be natural persons, and meet the following legal requirements:

Residency: At least one director of the company must ordinarily reside in Australia. There is no specific definition of this, however it may include being a resident for tax purposes, having possession of a visa and considering how much time is spent within Australia.
Age and Qualifications: Directors must be at least 18 years of age. They do not need specific qualifications or experience to serve as a director unless the company’s constitution specifies otherwise. The Director must consent in writing to take on the role and responsibilities of a director. As such, it is recommended that they have a thorough understanding and capability to manage the responsibilities as there are significant penalties for non-compliance.
Director Identification Number (DIN): All directors must obtain a DIN. This unique identifier helps prevent fraudulent director identities and ensures accountability. (See below).
No Disqualifications: A person cannot be a director if they are an undischarged bankrupt, are subject to a personal insolvency agreement or have been convicted of certain criminal offenses (e.g., dishonesty-related offenses), or are disqualified from managing corporations under the Corporations Act.

Director Identification Number

As of November 2021, all individuals – whether resident or non-resident – who wish to serve as a Director, must also have registered for, and hold, a “once-for-life” Director’s Identification Number (DIN). This includes both resident and foreign directors of all Australian companies and Australian Registered Bodies (or ARBNs, essentially a branch office).

Though this is a relatively straightforward process for Australian residents – and can be executed entirely online – for foreign resident directors, the only current options are still paper-based applications. Australian Business Registry Services - Director Identification Number

What are the Duties and Responsibilities of Australian Resident Directors?

The role of an Australian Resident Director is more than just a formal statutory requirement; it carries significant legal and fiduciary responsibilities. These duties are designed to ensure that directors act in the best interests of the company and its shareholders, comply with Australian laws, and maintain the company’s integrity. The role requires a duty to:

Act in Good Faith and in the Best Interests of the Company

- Directors must act honestly and with integrity in their dealings on behalf of the company and its shareholders.

Avoid Conflicts of Interest

- Directors must place the company’s interests over their own or those of other parties.
- Directors must avoid situations where their personal interests conflict with the company’s interests. This includes avoiding using or exploiting company information for personal gain.
- If a potential conflict arises, it must be disclosed to the board, and the director may need to abstain from related decisions.

Act with Care and Diligence

- Directors are expected to make informed decisions and take reasonable steps to understand the company’s activities and financial position.
- This includes regularly reviewing financial statements, understanding the company’s operations, and keeping informed about external factors that may impact the business.

Prevent Insolvent Trading

- Directors must ensure that the company does not incur debts if there are reasonable grounds to suspect that it cannot pay its debts when they are due.
- If a director allows the company to trade while insolvent, they can be held personally liable for the company’s debts.

Comply with Australian Laws

- Resident Directors must ensure that the company complies with all applicable Australian laws, including tax obligations, employment laws, and environmental regulations.
- They must also ensure that the company meets its reporting and filing requirements with regulatory bodies such as the ASIC and the ATO.

Duty to Maintain Financial Records

- Directors must stay updated about the company’s financial status and ensure that the company maintains accurate and complete financial records.
- These records must correctly record and explain the company’s transactions and financial position, allowing for the preparation of true and fair financial statements.

Potential Risks and Liabilities for Australian Resident Directors

The position of an Australian Resident Director comes with significant personal risks, particularly if the company encounters legal or financial difficulties and they may be personally liable for the company’s debts and regulatory action can be taken against them. Director obligations may continue even after the company has ceased trading and has been deregistered.

All directors can face personal liability in several situations, including:

Insolvent Trading. This is one of the fundamental duties of a director of any company is to ensure that the company does not trade while it is insolvent. By allowing a company to trade while insolvent, you may be acting illegally and be in breach of civil and criminal provisions of the Corporations Act and may be personally liable for debts incurred by the company if it continues to trade while insolvent.
Breach of Duties. If a director breaches their fiduciary duties and causes the company to suffer some loss, they can be held personally liable for any losses suffered by the company or its shareholders. Directors may also be liable for breaches of other laws administered by other agencies including being personally liable for outstanding tax obligations of the company under the ATO obligations. This is particularly important when the company has employees especially in relation to unpaid superannuation or PAYG employee withholding taxes.

The consequences of non-compliance with Australian laws and failure to perform directors’ duties may result in the director’s

investigation, charge and conviction of a serious criminal offence,
contravention of a civil penalty provision and the court may order you to pay a fine,
adjudication to be personally liable to compensate the company or others for any loss or damage,
disqualification from managing a company.

Appointing an Australian Resident Director

Given the significant business and personal risks, choosing the right person for the role of Australian Resident Director is crucial. For international businesses, this individual should have a strong understanding of Australian business practices, regulatory and compliance requirements and a track record of undertaking these statutory governance responsibilities specifically for international businesses.

Many companies opt to appoint a suitably experienced local professional consultant or specialist to fulfill this role. Given the personal risks involved, an experienced specialist will seek to undertake due diligence to gain an understanding of the business, its principals and its (proposed) operations in Australia prior to accepting an Australian Resident Director appointment. This will provide peace of mind that the consultant or specialist understands the role, responsibilities, risks and obligations.

Conclusion

Appointing an Australian Resident Director is a legal necessity for international businesses establishing a local entity in Australia. Beyond fulfilling a statutory requirement, the Resident Director plays a critical role in ensuring the company operates in compliance with Australian laws and standards. By engaging an Australian Resident Director with deep experience and understanding of the duties and responsibilities of this role, international businesses ensure that their interests are safeguarded, the company’s risk is minimised and operations are professionally supported.

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