Good record keeping can be the key to protecting you against being held accountable for a company’s unpaid debts.
The Corporations Act 2001 (the Act) requires a company to keep written financial records for a period of seven years after the transactions covered by those records are completed. These records must enable the preparation and audit of true and fair financial statements. The responsibility for ensuring a company keeps appropriate financial and corporate records falls on the company’s directors. This obligation continues even if you outsource these tasks to a third party. If sufficient records aren’t available, the company is presumed to be insolvent, and directors can become personally liable for company debts.
Director’s personal liability
The importance of good record keeping is highlighted if there are issues with a company’s insolvency. A liquidator will ask a company to provide information about its financial status, along with books and other records. If there is a failure to provide this information or the records are incomplete, disorganised and of little assistance, a liquidator may be inclined to bring a claim against the directors for trading while insolvent.
Historically, it could be hard for a liquidator to prove insolvency when a director had “lost” or never prepared books and records. As a result, the law was amended so that if a director has failed to keep books and records, or fails to deliver books and records to the liquidator, then the liquidator is allowed to “presume” that the company was insolvent for the entire period of inadequate record keeping. This exposes the directors to:
- Personal fines of up to $1,650,000
- Compensation proceedings by creditors or liquidators
- Bankruptcy proceedings
The Australian Securities and Investments Commission (ASIC), Australia’s corporate regulator, treats breaches of record-keeping obligations seriously. If a director is found to have acted dishonestly, they may also be charged with criminal offences and further fined up to $660,000. Other consequences may include imprisonment and disqualification from holding any other directorships.
13,413 companies entered external administration in the financial year to 31 May 2025, up 34.2% from the same period in 2023-24, proper record-keeping isn’t just a compliance issue, it is a critical safeguard against personal liability in times of financial trouble.
Maintaining records matters
You need to keep such records as:
- Financial statements: Profit and loss statements, balance sheets and cash flow statements.
- General ledger: A record of all transactions, ideally reconciled against bank statements.
- Cash records: Bank statements, cash receipts and petty cash logs.
- Sales and debtor records: Invoices, statements, unpaid invoices, and debtor documentation.
- Employee records: Employment contracts, wage records, pay slips and superannuation contributions.
- Asset registers: Records of assets, valuations, and evidence of depreciation.
- Corporate records: company constitutions, shareholders’ agreements, company registers of members, and minutes of meetings.
- Legal records: Loan agreements, assignments, leases, inter-entity agreements, licences and permits.
- Taxation records, including tax returns and records relating to any business transactions (for example, the purchase or sale of equipment, property or other assets).
This is a non-exhaustive list.
With insolvency numbers continuing to climb, the risk of a liquidator scrutinising your records has never been higher. Directors who proactively maintain complete, organised records, and seek legal advice at the first sign of financial stress are far better placed to defend themselves against personal liability for company debts. Don't wait until a crisis to find out whether your records are up to standard.
