The recent collapse of one of Stonewood Homes' franchisors has placed the conduct of directors squarely in the spotlight once again. The company collapsed owing about $15 million. This article makes the issues plain, and it serves as a warning for other directors.
The Companies Act 1993 specifies the duties of directors, including that they must act in the best interests of the company and not allow the company to trade recklessly. That a company collapsed owing such large debt suggests that the company may have been trading near, at or beyond its means for some time. Whether the directors of the collapsed company were negligent or not will be determined in due course, I'm sure.
The role of a director carries much responsibility. If you are a director, you must know and understand your duties and responsibilities under the Act, and whether you are discharging them correctly. If you have any doubt, discuss the matter at your next board meeting and seek independent advice from a competent lawyer. Don't forget to ask about related legislation—you may have responsibilities under other pieces of legislation and you may not realise it. An independent governance review, to review the operation of the board as a whole might also be in order, to assess the board's performance especially in relation to value creation. Another consideration is professional development, to ensure all directors are adequately trained and knowledgeable.
Thoughts on corporate governance, strategy and effective board practice; our place in the world; and, other things that catch my attention.