Small businesses are at significant risk when company directors misuse company funds, according to a warning from the Australian Securities and Investments Commission (ASIC).
The regulator has recently highlighted cases where directors allegedly used company resources for personal purposes, leading to financial difficulties for their businesses and putting creditors, particularly small businesses, in a vulnerable position.
One case involved a director of two construction-related companies, who is accused of transferring company funds to personal accounts, including a credit card, for personal use. Both companies later went into liquidation, leaving several small business creditors unpaid.
In another case, a director of a beverage distribution company used company funds to pay for legal fees associated with annulling his personal bankruptcy. These actions not only jeopardise the financial stability of the companies involved but also disrupt the operations of creditors who depend on timely payments to manage their own expenses.
According to data from registered liquidators, poor financial control, including the misuse of company assets, contributed to the failure of 36% of companies in 2023 to 2024.
For small business creditors, the collapse of a company can have severe consequences, disrupting cash flow and making it harder for them to pay their own suppliers and employees.
ASIC has reminded directors of their legal obligations to use company funds solely for business purposes.
Directors must act in the best interests of the company and make decisions that take into account the welfare of all stakeholders, including employees, customers, and creditors.
Misuse of company resources for personal gain is a violation of these duties and can result in serious consequences for both the company and its creditors.
The regulator has taken action against directors involved in misconduct. In the first quarter of 2025, ASIC investigated and prosecuted directors who allegedly misused company funds. One of these cases involved a director of two construction companies accused of transferring company funds for personal use, leading to liquidation. Another case saw a director using company funds to annul his personal bankruptcy. These examples serve as a warning to all directors about the risks of mismanaging company resources.
Directors who fail to meet their legal obligations may face civil and criminal penalties, including disqualification from acting as company directors.
The Australian Taxation Office may also take action against directors for unpaid company tax debts, while liquidators may pursue directors for compensation if they find evidence of misconduct leading to the company's collapse.
Between January 1 and March 31, ASIC prosecuted 34 individuals for 67 offences related to failing to assist registered liquidators, resulting in $244,500 in fines.
What additional measures could be taken to protect small business creditors from the consequences of director misconduct? Share your thoughts in the comments.
