This is a common question that arises for directors, whether it be directors of a proprietary limited company or public company: can I be personally liable as a director?

There are various situations whereby you are protected from being sued in your personal capacity as a director. However, you cannot solely rely on these methods in the event you or your company are sued.

When am I protected from being personally liable as a director if my company is sued?

A common phrase you may have heard is 'the corporate veil.' The corporate veil is an artificial 'shield' which protects directors from being personally liable if a company is sued or if you are sued as a director of that company.

This is because a company is its own distinct corporate legal entity which is capable of suing and being sued. Therefore, joining directors to most lawsuits is not permitted and, generally speaking, as a director, you will be protected from court proceedings.

Regardless of whether you actually are protected from a lawsuit by the corporate veil, if you are sued as a director of a company or if your company is sued, we recommend you should immediately seek legal advice.

How do companies and individuals get around the corporate veil?

Another phrase you may have heard is 'piercing the corporate veil.' This is where individuals, companies and Government organisations can sue you personally and target your personally owned assets as a result of your conduct as a director.

Examples where you will be personally liable as a director include:

Engaging in 'insolvent trading' under the Corporations Act 2001 (Cth): Insolvent trading occurs when the company no longer has enough funds to pay its liabilities, as and when they fall due, and yet the company still continues to trade. This is when a director may become personally liable;
Breaching certain Occupational Health and Safety Laws and Regulations: In certain circumstances, directors may be personally liable for fines and sanctions for breaching these regulations despite the company being the legal entity to engage in the conduct;
Breaching taxation laws: A prohibited practice known as 'phoenixing a company' can result in a director being personally liable for unpaid taxes. Phoenixing occurs when a company incurs substantial debts (including unpaid tax) only for the director(s) to move the company's assets into a new company structure. At the same time, the directors commence winding up of the existing company to avoid unpaid tax and debts. If you are caught phoenixing, you face substantial financial penalties; and
Non-payment of employee entitlements: Directors are also personally liable for unpaid employee superannuation guarantee amounts and unpaid PAYG instalments.

How can Sharrock Pitman Legal help me if I become a director or face a lawsuit?

You cannot always rely on the corporate veil to protect you. However, there are strategies available to guard against the risk of significant financial distress if you are sued as a director.

If you are a director, you should immediately seek legal advice from an experienced commercial lawyer concerning your potential exposure to liability. For more information regarding directors' duties other than financial liability read our previous article here.

ASIC also provides information regarding directors' duties and directors' liabilities. For more information regarding directors' liabilities, view the ASIC website here.

At Sharrock Pitman Legal, we have Accredited Specialists in various areas of law, including Commercial Law. Our commercial lawyers can assist you and provide timely advice about what you should do as a director, how to reduce your risk of any personal liability, and how to protect your personal assets from attack. Please feel free to call Mitchell Zadow on (03) 8561 3318 if you have any queries, or fill in the form below.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

Liability limited by a scheme approved under Professional Standards Legislation.

Written by a member of our Legal Team

For further information contact

Caroline Callegari

Caroline Callegari is an Associate Principal and leads our Disputes & Litigation team. She has an advisory and advocacy practice in the following areas: Commercial Litigation, corporate and personal disputes, debt recovery and, insolvency and bankruptcy matters. Caroline can be contacted on (03) 8561 3324.

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However, in this article we will set out the factors that influence how long it will take to obtain a Grant of Probate and to administer an estate in Victoria.

The basics

First things first: what is a Grant of Probate? A Grant of Probate is effectively a document issued by the Supreme Court of Victoria which formally authorises an executor to manage the estate of a deceased person in accordance with their Will. Without Probate, the asset holders (say a bank or share registry) cannot be satisfied as who has the correct authority to receive the deceased's assets and may refuse to pay out.

Sometimes, for smaller estates or if assets are mostly jointly owned with a surviving spouse, asset holders might agree to release payment without requiring a Grant of Probate. This is usually on the basis that the person who receives payment promises to repay (or Indemnify) the asset holder if it turns out they paid to the wrong person.

If there is no Will, then you cannot obtain a Grant of Probate. Instead you obtain Letters of Administration. This is effectively the same, in terms of authorising someone to administer the estate, and would usually be obtained by the person who is the closest next-of-kin to the deceased.

“A Grant of Probate is effectively a document issued by the Supreme Court of Victoria which formally authorises an executor to manage the estate of a deceased person in accordance with their Will.”

Timeframes for Probate in Victoria

In order to obtain a Grant of Probate, the Supreme Court needs to be given information about the assets and liabilities of the estate, the deceased person, the witnesses to the Will, the executors and the Will itself. An advertisement of your intention to apply for Probate must also be published on the Supreme Court website for at least 14 days prior to any application being lodged.

Often, making enquires to obtain all the necessary information can take a number of weeks. Also, you will need the Death Certificate for the application for Grant of Probate and possibly for making proper enquires regarding the assets and liabilities. Waiting for the Death Certificate to issue can therefore add a few more weeks to the process. Overall, if you have your application for Grant of Probate lodged within 1 to 2 months from the date of death, you are making timely progress.

The Court itself usually does not take long to process the application (maybe another 1 to 2 weeks) and this is completed using the electronic Supreme Court filing system. This means you do not have to go to a Court hearing. The timeframe for processing applications for Letters of Administration is even less, given that there is no Will document for the Court to consider. There is also a general discretion for the Court to raise a 'Requisition' asking for more information before they review the application - this can sometimes delay matters.

“Overall, if you have your application for Grant of Probate lodged within 1 to 2 months from the date of death, you are making timely progress.”

So, here we are a few months after death and you finally have a Grant of Probate or Letters of Administration. It is important to remember that this is the start of the estate administration and not the end. For a very simple estate, you might only need a further month or so to cash the assets and pay them to the correct beneficiaries. However, it can often be more complex than that. Factors that determine the timeframe to administer the estate include:-

Some assets will take time to cash or transfer. For example, if selling a property, final settlement might be 60/90/120 days from the day of sale.
There is a 6 month period for challenges to be brought against the estate and executors must wait until this period expires before distributing the estate, if there is any risk that a disgruntled family member might come forward.
There might need to be final tax returns for the deceased or for the estate. Failing to wait for the ATO to process these could leave the executor personally liable for a tax bill.

You might need to advertise for creditors to come forward and wait for a period of months while this advertising timeframe expires. This protects the executor if they are unsure of all of the deceased's financial dealings and creditors.
It might not always be a good time to immediately cash estate assets. For example, the shares just took a nose-dive, do you still sell regardless of available price?

There is a general rule that executors have an 'executor's year' to complete the estate administration. This means that you should be aiming to have the estate finalised and distributed within 12 months from the date of death.

Liability limited by a scheme approved under Professional Standards Legislation.

Need help with Probate?

Our expert legal team is ready to take your call!

Mitchell is the Managing Principal of Sharrock Pitman Legal. He is an Accredited Specialist in Commercial Law (accredited by the Law Institute of Victoria). He also deals with areas of Employment Law, Wills & Estate Planning and Probate and can answer all your questions related to probate.

For further information, contact Mitchell on his direct line:

DIRECT LINE:

(03) 8561 3318

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Can I be personally liable as a director?

When am I protected from being personally liable as a director if my company is sued?

How do companies and individuals get around the corporate veil?