Directors - If you act for a company, you can be liable too
Rockliffs Solicitors and IP Lawyers
Publish Date: September 28, 2006
An individual director acting in trade or commerce on behalf of a company also acts for himself or herself. If the company is liable, the director is equally liable.
This Federal Court ruling follows on a case where the director of a company that was selling a bakery made misleading statements about the profitability and value of the business.
The purchaser was told the net profit for the business was $169,716 on “actual figures”, whereas only $56,693 was recorded on accounts that finally came to light in court.
After the sale, the bakery failed to trade profitably and was closed. The former owners put this down to the new owner’s lack of management skills. But when the purchaser found that a director of the company selling the business had misrepresented reality, she sued the company and its directors for damages.
One director admitted that all the conduct attributed to the company was his, and the judge awarded damages to the purchaser. The judge said the purchaser had relied on the misleading information to buy the business.
The director had engaged in misleading conduct in trade or commerce under the Trade Practices Act and under the Fair Trading Act.
Under the Trade Practices Act, the director of a company has liability as an accessory if they knew what was going on. Under the Fair Trading Act, if they act for a company they act for themselves and have primary liability.
This article is re-printed with the permission of the Law Society of New South Wales.
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