How ASIC Holds Directors Accountable

Company directors play a key role in ensuring businesses are run responsibly, balancing financial and legal obligations to protect creditors, employees, and the public. But what happens when directors fail in these duties? That’s where the Australian Securities and Investments Commission (ASIC) steps in.

ASIC has the authority to disqualify directors who repeatedly mismanage companies, safeguarding the broader public interest and ensuring trust in corporate governance. This article explains how ASIC’s disqualification process works, why it’s important, and the growing focus on holding directors accountable.

Why ASIC disqualifies directors

ASIC can disqualify directors under section 206F of the Corporations Act 2001 (Cth). This law allows ASIC to ban individuals from managing companies for up to five years if they meet certain criteria such as:

• Being involved in two or more failed companies within seven years.
• Reports from liquidators showing company insolvencies or unpaid debts.
• Evidence of misconduct or ongoing failure to meet financial or legal obligations.

By disqualifying directors who fail to meet these standards, ASIC aims to protect stakeholders and prevent further harm caused by mismanagement.

The disqualification process

Before ASIC disqualifies a director, a fair and structured process is followed:

1. Identifying Failures: The director must have been involved in at least two failed companies within seven years, with liquidators confirming debts.
2. Notification: ASIC informs the director of its intention to disqualify them and provides an opportunity to respond.
3. Hearing: Directors can present their case, submit evidence, and attend a hearing if necessary.
4. Decision: ASIC makes its decision based on whether the disqualification is in the public’s interest.

If directors disagree with the outcome, they can appeal the decision to the Administrative Appeals Tribunal (AAT), which reviews the case.

The case of Constandinos Ganatzos

One recent example is Constandinos Ganatzos, who was banned from managing companies until 2029 after being involved in the failure of 21 companies. These businesses owed more than $71 million to creditors, including over $21 million to the Australian Tax Office (ATO).

ASIC identified key failures, such as:

• Not lodging financial documents like tax returns and Business Activity Statements (BAS).
• Allowing companies to trade while insolvent.
• Failing to maintain proper financial records.
• Not cooperating with liquidators by withholding company documents.

This case highlights how ASIC targets directors with repeated governance failures to protect the public and maintain trust in the corporate sector.

When does ASIC step in?

ASIC typically disqualifies directors in cases where:

• There is repeated misconduct, such as failing to file financial statements or trading while insolvent.
• Their actions cause significant financial harm to creditors, employees, or the public.
• Removing them is necessary to prevent further harm and deter future misconduct.

Reports from liquidators often trigger these actions, flagging potential breaches of directors’ duties under the law.

The rise in director disqualifications

ASIC has been ramping up its enforcement activities in response to growing corporate failures. Between April and June 2024, ASIC disqualified seven directors across industries, citing serious misconduct.

For example:

• Meral Altinarda (Accommodation/Food Services): Disqualified for 4 years; four companies owed $2.2 million to creditors and $1.7 million to the ATO.
• Julian Bignold (Food Services): Disqualified for 3.5 years; two companies owed $12.4 million to creditors and $529,561 to the ATO.
• Miroslav Samardzija (Building/Construction): Disqualified for 5 years; three companies owed $2.3 million to creditors and $1 million to the ATO.
• Laurence Pereira (Electrical/Refrigeration): Disqualified for 5 years; four companies owed $4 million to creditors and $1 million in unpaid wages and entitlements.
• Peter Gribble (Property Development): Disqualified for 2.5 years; four companies owed $9.5 million to creditors. Gribble had previously been banned in 2022 for 3 years.
• Andrew Parry (Solar/Media/Bitcoin Mining): Disqualified for 5 years; four companies owed $11 million to creditors.
• Christian Oey (Financial/Insurance Services): Disqualified for 5 years; two companies owed $5.9 million to creditors.

This upward trend shows ASIC’s commitment to protecting stakeholders and addressing misconduct in Australia’s corporate landscape.

Why it matters

ASIC’s power to disqualify directors is essential to maintaining accountability and trust in businesses. It prevents repeat offenders from causing further harm and sends a clear message that poor governance won’t be tolerated.

For directors, it’s a reminder of the importance of meeting their obligations and prioritising responsible management. By taking strong action, ASIC ensures the integrity of Australia’s corporate system and safeguards the interests of creditors, employees, and the public.