Evade Failure by Learning from the 7 Biggest Mistakes Directors Make And Could have Avoided

4-June-2019 Commercial Disputes By Mark Streeter

Businesses fail due to the inaction of its Directors or Management.

Most of these Breach of Directors Duties, Corporation Act breaches and Corporate Governance disputes or mistakes are avoidable- most occur because Directors and officers of companies bury their head in the sand and choose to ignore the difficult decisions [or sometimes the easy decisions which they know they should be making].

Don’t fall into these common traps that in our experience result in disaster. Act now by incorporating these 7 lessons from 7 mistakes that we have seen.

1. Do not ignore Internal Corporate Governance Disputes

Mistake- Do not ignore Internal Corporate Governance Disputes such as rogue directors, feuding shareholders or troublesome stakeholders.

Lesson Learnt- Often a little bit of communication is all it takes to alleviate Business disputes and tension within the business itself (and even amongst Directors) is destructive to business profitability.

Mistake- Appointing Directors or Officers in haste.

Lesson Learnt- Vet Directors/ Officers thoroughly before appointment. Resolving these disputes takes time and money away from the interests of your business.

Contact our Commercial Dispute Resolution Team for a Director Dispute Review with a Specialist.

2. Do not ignore the paperwork and your Company Folder

Mistake- I will get around to updating the Company Folder later. I will reconcile the minutes of meeting later.

Lessons Learnt- Changes to officer holders or the Company may require ASIC notification. This results in not only penalties, but it is a breach of your duties as a Director.

Contact our Commercial Dispute Resolution Team for a Corporate Governance Dispute Review with a Specialist. We can help you update your corporate governance documentation.

3. Not understanding the terms of your loan?

Mistake- Directors making payments under the guise of a loan- without understanding the consequences of doing so.

Lessons Learnt- Directors should be aware that unpaid loans as of the date of an insolvency event may expose you personally to a claim to recover the loan.

Contact our Commercial Dispute Resolution Team for a Contract Dispute Review with a Specialist.

4. Failing to Make the Tough Decisions

Mistake- Director inaction due to personal investment or a personal relationship with a stake holder. We understand that you are personally invested in the Company since incorporation. Whilst these Directors are motivated through their personal investment in the Company, this can mean difficult choices are put off continuously. This could be investigating the misuse of funds by a close friend and Director, spending tens of thousands on updating your software when you yourself think pen and paper is good enough, or acknowledging that the direction you dreamed taking the Company is failing.

Lessons Learnt: Consider obtaining independent and objective advice regarding the potential business dispute. Contact our Commercial Dispute Resolution Team for a Business Dispute Review with a Specialist.

5. Ignoring your Director Statutory Duties and Fiduciary Duties

Mistakes:- Directors have complex and at times onerous obligations to the Company. Whilst many of them are routine, such as ensuring tax returns are filed on time and authorising certain transactions, many require more a more considered approach such as handling conflicts of interest.

Lessons Learnt:- Invest in your career and protect yourself. Understand your obligations by contacting our Commercial Dispute Resolution Team for a Directors Obligations Review with a Specialist.

6. Throwing good money at bad.

Mistake:- Throwing good money into a huge hole of debt or on a project that will not provide a return on investment.

Lessons Learnt:- Contacting our Commercial Dispute Resolution Team for an Insolvency Review with a Specialist.

7. Unrealistic Cashflow Forecasts

Mistake:- Creating Unrealistic cashflow forecasts where you anticipate unrealistic returns or turnarounds for payments.

Lessons Learnt:- Allow for bad debt, provision for disputes to occur [because they will] and create a reserve. Don’t put all your eggs into one basket.

Contact our Commercial Dispute Resolution Team for a Business Dispute Review with a Specialist.

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Written by Mark Streeter

Mark Streeter

The Director of Streeterlaw, Mark has been practicing Law since 1994. He has attained his Masters of Law in 1999 and in 2006 was awarded his Specialist Accreditation in Commercial Litigation. Mark is a member of ARITA, a graduate of the AICD and a member of AICM. A member of STEP, Mark enjoys working in the area of Wills and Estates. In 2020 Mark is the Chair of STEP NSW.

Call us on 02 8197 0105 to book an appointment with Mark Streeter!

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