Agency Directors: When is your house on the line?
O*NO – you’re a director of your agency and you know that you have director duties at law but aren’t sure exactly what they are. You’ve also heard that directors can be personally liable (ie lose their house) if certain things happen, but what are ‘those things’?
I’ve been asked about this one a bit lately, especially as many agency principals have been told that if you run your agency through your company, your personal assets are quarantined and safe. Now, that is true to an extent, but there are several ways in which directors can be personally liable, and that means any assets in your name could be at risk.
This is not to alarm you, but to give you some guidance on what you need to do to stay protected. If you do the right thing, you will be fine - but you need to know what the ‘right thing’ is first.
Director duties
As a director of a company there are many things that you need to do and be aware of. The main statutory duties you have are the duties to:
Take care & be diligent
Act in good faith
Not improperly use position
Not improperly use information
Essentially you must take the time to understand your company and its position, especially financially. You can’t just leave the management to someone else. Yes you may hire people or use advisors for certain functions, like the accounts and legal, but at the end of the day the buck stops with you and you need to be on top of what is going on.
You also need to act in its best interest of the company. This includes not using your position or information to your personal advantage (an example of this is insider trading).
Responsibilities
Whilst you have many responsibilities and we will go into more detail in other blogs, you have an overarching duty to ensure your company is not trading whilst insolvent. But what does this mean? It means that the company must be able to pay its bills as and when they fall due. There are other factors at play here, but that is the big one.
In acting in the best interest of the company, you must also disclose any actual conflicts of interest or perceived conflicts. In companies with more than one director or shareholder, you should keep a conflicts register and at the start of each directors meeting you should update your conflict disclosures, especially if there is anything on the agenda for that meeting that causes a conflict – either actual or perceived.
Breaches
If you breach your director duties, especially if you cause the company loss, or trade whilst insolvent, then the asset shield that you have put in place can be pierced and your house and other personal assets could be on the line.
Not only are there civil penalties (fines that put your assets at risk), but you could be disqualified from being a director. There are also criminal sanctions. Worst case – you can go to jail for up to 5 years, cop fines in the hundreds of thousands, risk your house and lose your real estate licence.
Now, that is worst case scenario – but if you know your responsibilities, stay on top of things, have advisors in place that you trust for areas of the business that are foreign to you (such as accounting and legal), then you will be fine!
Takeaway
At the end of the day, you need to inform yourself about each area of your agency. Whilst the rewards of agency ownership come to you, so does the risk and liability.
Make sure that you:
Understand your director duties and responsibilities
Know your numbers and stay on top of your financial position
Surround yourself with the right team and advisors
Your next steps
Not sure what your responsibilities are or want to ensure you have the right advisors in place? Book a FREE 10 min consultation with us today to discuss your options.
Want to know how our real estate agency legal experts can help you sort out your agency matters? Contact us today to get you on track to running your agency with the knowledge that you, your assets, and your future are protected.
Boring legal stuff: This article is general information only and cannot be regarded as legal, financial or accounting advice as it does not take into account your personal circumstances. For tailored advice, please contact us. PS - congratulations if you have read this far, you must love legal disclaimers or are a sucker for punishment.