From Obligation to Risk: Critical Financial Duties for SME Directors
- David Wong
- May 23
- 3 min read
Follow us on LinkedIn for the latest industry updates and trending news.
The Australian Securities and Investments Commission (ASIC) has recently reiterated that directors of small businesses must strictly uphold their legal obligations when handling company assets and funds. All financial decisions must serve the best interests of the company as a whole.
This reminder follows enforcement actions taken by ASIC against several directors found to have misused company assets—particularly in cases involving unpaid employee wages, supplier debts, and tax obligations.
Company Funds Are Not Personal Funds
Under Australian company law, directors are required to act honestly, in good faith, and not to use their position for personal gain. A fundamental rule is that company funds must not be used for personal expenses. This includes paying credit card bills, school fees, or funding family holidays from business accounts.
Such conduct not only breaches financial discipline but may also lead to cash flow problems, unpaid obligations, and in extreme cases, insolvency—impacting employees, suppliers, and tax agencies alike.
Poor Financial Control Remains a Key Cause of Business Failure
According to reports filed by registered liquidators for the 2023–24 financial year, 36% of business failures involved inadequate financial control, including the misuse of company resources for personal benefit. For small businesses already under cash flow pressure, even minor mismanagement can trigger a cascade of failures across supply chains.
How Directors Can Ensure Compliance
To reduce risk exposure, directors should observe the following practices:
Separate company and personal accounts: Company funds are for legitimate business use only. Every expense must be properly recorded and justifiable.
Make decisions in the company’s best interest: Directors must consider obligations to employees, the ATO, and business creditors, and ensure timely payments as part of their fiduciary duties.
Legal and Commercial Consequences of Misconduct
Failure to comply with these duties can result in civil or criminal penalties, including disqualification from acting as a company director. Recent enforcement cases include:
A construction company director who transferred company funds to personal accounts and used them for private expenses—resulting in liquidation and unpaid debts to small business creditors.
A beverage distribution director found guilty of using company funds to annul a personal bankruptcy—constituting dishonest use of position.
Liquidators may also pursue directors personally for compensation, and the ATO may seek to recover unpaid company tax directly from directors. In the first quarter of 2025, ASIC prosecuted 34 individuals for failing to assist liquidators, with total fines reaching $244,500.
Practical Reminders for Directors
Directors are not only strategic leaders, but also stewards of the company’s financial integrity. Sound financial management reflects strong governance and underpins a business’s sustainability and credibility.
Here are key reminders for directors:
Do not use company funds for personal matters: All business spending must be for legitimate operational purposes. Even temporary or partial use for personal matters may breach legal duties.
Establish clear approval processes: Major or sensitive payments should follow documented procedures and involve at least dual authorization or external review.
Maintain accurate records and supporting documents: Keep detailed, timely documentation of all transactions to meet audit and legal requirements.
Balance the interests of all stakeholders: Prioritize obligations to employees, suppliers, and the tax office to preserve trust and stability.
Financial compliance is one of the most frequently overlooked, yet most legally sensitive, areas of governance. If mismanaged, directors may face personal liability—even when acting under perceived business urgency.
We strongly encourage small business directors to lead with integrity, manage responsibly, and protect their organizations by upholding sound financial discipline.
If you would like tailored advice on governance and financial compliance, our professional team is ready to support your business success and risk mitigation strategies.
Source: ASIC reminds small business directors of their obligations to manage company money and assets appropriately, ASIC website. ASIC reminds small business directors of their obligations to manage company money and assets appropriately | ASIC
