A guide for directors

Summary

An Indigenous corporation registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act) is required by law to meet a number of requirements. Some of these requirements are specified in the Act while others are part of the general law of corporations, otherwise known as the common law. The following information is provided as a guide only to help directors perform their duties.

What is required of a director?
A director's obligations
What financial records must be kept by the corporation?
What are financial records?
What if your corporation can't pay its debts?

What is required of a director?

Directors have a duty:

of care and diligence
not to improperly use their position or information
not to trade while insolvent
of good faith
to disclose conflicts of interest

for further information, see ORIC's fact sheet on Duties of directors and other officers.

A director’s obligations

As a director together with the other board members, you will control the corporation’s business. The corporation’s rule book will set out the powers and functions of the board of directors.

A director has a common law right to inspect documents of the corporation, if required, in order to assess the corporation’s performance.

A director must:

be fully up to date on what the corporation is doing
find out for himself or herself how any proposed action will affect the corporation’s business performance, especially if it involves a substantial amount of the corporation’s money
obtain outside professional advice when required in order to make an informed decision
ask questions of managers and staff through the chair at board meetings about how the corporation is going
take an active part in board meetings.

Remember, only be a board member if you are willing to put in the effort.

What financial records must be kept by the corporation?

As a director together with the other board members, the law makes you personally responsible for keeping proper corporation accounts and records. As a board, you must ensure the corporation keeps up-to-date financial records that:

correctly record and explain its transactions (including any transactions as a trustee), and
explain the corporation’s financial position and performance

Even the smallest corporation must have financial records so that:

true and fair financial statements of the corporation can be prepared if needed;
financial statements can be conveniently and properly audited, if necessary; and
the corporation can obey the tax laws and the laws on superannuation.

What are financial records?

The basic financial records that accountants might expect a corporation to keep are:

income and expenditure information that records all the corporation’s transactions
cash records—e.g. bank statements, deposit books, cheque butts, petty cash records
creditor and purchases records—e.g. purchase orders, invoices and statements received and paid, unpaid invoices, a list of all purchases, a list of all creditors and their balances
wages and superannuation records
a register of property, plant and equipment showing transactions and balances in relation to individual items
inventory records
tax returns and calculations—e.g. income tax, group tax, fringe benefits tax and GST returns and statements
deeds, contracts and agreements.

Get professional advice if you have any doubt about the content or type of financial records to keep. The list above gives examples only, because the financial records you need will vary from corporation to corporation.

You may keep some financial records electronically, but you must be able to convert them into hard copy so that you can give them to anyone entitled to inspect them.

What if your corporation can't pay its debts?

You must stop your corporation trading if it is unable to meet its existing debts. You must prevent the corporation from taking on new debt if that would mean it could not meet that debt and its existing debts. If you have reasonable grounds to suspect that the corporation cannot meet its debts, or won't be able to if you take on more debt, stop and get professional advice.

Your corporation is 'insolvent' if it can't pay its debts. You would be breaking the law if you let the corporation trade while insolvent. You could be sued personally by a liquidator or creditors for your own assets, not just the assets of your corporation, and you could face civil or criminal action.

Common signs of financial trouble are:

insufficient cash flow
problems paying trade suppliers and other creditors on time
trade suppliers refusing to extend further credit to the corporation
legal action taken, or threatened, by trade suppliers or other creditors over money owed to them.

If your corporation is having difficulties paying its debts, get professional advice quickly. Don't assume that you will be able to trade out of the problem. Delay could be damaging to the corporation and to you personally.

Page updated: 03 Jun 08