ASIC Banning of Directors post Covid-19

ASIC Banning of Directors post Covid-19
Posted on 5 Aug 2020


In the wake of Covid-19, there are likely to be a number of distressed businesses and corporate entities that inevitably suffer an insolvency event and are forced to close their doors.  This may result in a number of external administrations such as appointments of a receiver, voluntary administration, voluntary winding-up or a creditors’ winding-up.

If you are a director of a company placed into liquidation, or more significantly a director of multiple entities that suffer an insolvency event and are placed into liquidation within a period of seven years of each other, then the ASIC has the power, pursuant to section 206F of the Corporations Act, to disqualify that person from being a director of a company for a period of up to five years.

The disqualification pursuant to section 206F of the Act is not automatic and ASIC will take into account certain factors such as the reason for the collapse of the failed companies, and invite submissions from the director prior to exercising its power.


Relevantly some of the factors taken into account are:

(a)        whether the failed companies were all involved in the same business such that the domino effect results in multiple companies going into liquidation at once and for the same (or similar) reasons;

(b)        whether the conduct of the director in particular is such that it is misconduct, or there have been significant breaches of the directors’ duties found at sections 180 to 183 of the Corporations Act 2001; and 

(c)        whether there is a public interest element attached to the disqualification.


It remains to be seen whether the impacts of the pandemic are another factor that the ASIC may take into account and whether any connection between the pandemic and the collapse affords some leniency.

Certainly, the ASIC’s current position is indicative of some consideration given to the pandemic, having already notified that it is focusing its regulatory efforts on challenges created by the pandemic and relegating other matters to low priority until at least 30 September 2020.

As to October and beyond, it is not yet known how ASIC will exercise this power in a post-Covid-19 environment. The timing is relevant though, as 25 September also brings with it the end of the moratoriums granted by the amendments to the Corporations Act 2001 and the Bankruptcy Act 1966 pursuant to the Coronavirus Economic Response Package Omnibus Act 2020.

With a potential second wave upon us, and JobKeeper 2.0 already announced extending support for eligible employees, it appears more likely than not that ASIC’s focus will not return to these matters just yet, and likely not before 2021.

However, the significant financial impacts on the economy and businesses is very real and there are steps you may be taking now, to assist in any submissions that you may ultimately need to make to the ASIC in the future.


Contact one of our team at Cronin Miller Litigation Lawyers for further information.

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