What are the obligations under the law?
It is firstly important to understand what the law expects of company directors with respect to keeping proper books and records. The Corporations Act also clearly sets out the obligations of a company director. Section 286 of the Corporations Act, says that a company must keep written financial records:
- correctly record and explain its transactions and financial position and performance, and
- would enable true and fair financial statements to be prepared and audited.
So what exactly does the law expect in terms of financial records. This is defined in the Corporations Act to mean:
- invoices, receipts orders for the payment of money, bills of exchange, cheques, promissory notes and vouchers documents of prime entry, and
- working papers and other documents needed to explain:
- the methods by which financial statements are made up, and
- adjustments to be made in preparing financial statements.
The law recognises that in modern times most financial records are kept in an electronic format and most accounting software packages are designed this way. If you maintain your company’s records electronically you need to be mindful of Section 288 of the Corporations Act which states that if financial records are kept in electronic form, they must be convertible into hard copy.
This means that you should always keep multiple copies of the electronic records on site and off site.
Many companies now offer data hosting services for records to be stored “in the clouds”. This is critical because if your company’s premises experienced a fire or some sort of other natural disaster like a flood, the electronic records held on site could be destroyed and lost.
The law also expects company directors to make hard copies of financial records available within a reasonable period of time to a person who is entitled to inspect the records. This obligation still applies even if the financial records are kept on a computer which is owned and operated by a third party (e.g. your company’s accountant or a data hosting company).
As a minimum, we would recommend that company directors ensure that the following records be produced at:
monthly director’s meetings
- Monthly Profit and Loss;
- Year to date Profit and Loss
- Year to date Balance Sheet
Annual director’s and shareholder meetings
- Year to date Profit and Loss;
- Year to date Balance Sheet; and
- Taxation Returns and Depreciation Schedules
So what are the consequences for not keeping proper books and records?
Failing to keep proper books and records can be disastrous for a company director. If your company subsequently goes into liquidation and your company has not maintained proper books and records, the liquidator can reply upon a statutory presumption that your company was insolvent for the time period that your company failed to maintain proper books and records. This means that as a company director you could become personally liable for the debts incurred by the company for the time period that you failed to keep proper company records. Therefore, if you are considering a company liquidation, you should take immediate steps to get the company’s records up to date.
Furthermore, if your records were not properly maintained the liquidator can file a request with the Australian Securities and Investments Commission for you to be prosecuted.
Call us today to discuss your needs
If you are considering a company liquidation, then you should call the liquidation specialists on 1800 003 883.
We handle all types of liquidations and business insolvencies. Our Registered Liquidator is fully licenced by the Australian Securities and Investments Commission and has over 20 years experience in the insolvency profession. Call us today and we will happily provide a quote on a no obligation basis.
All calls to us are confidential and can also be anonymous if required. We look forward to speaking to you soon. Calls to our hotline are free on 1800 003 883.