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Can the Personal Assets of a Director be Seized for Omission on His Part

Director Liability: Understanding Personal Asset Seizure for Omission

By Shreya VarmaPublished 6 months ago 5 min read

As a company director, you hold a great deal of responsibility for the success and compliance of your organization. But did you know that this role can also come with personal liability? In particular, failing to fulfill certain duties can result in your assets being seized. This is known as director liability for omission – and it's important to understand what it means, how it works, and how you can protect yourself from potential financial ruin. In this blog post, we'll explore everything you need to know about director liability and asset seizure so that you can stay informed and make smart decisions as a business leader.

What is Director Liability?

As a director of a company, you may be held liable for the company’s debts and other obligations. This means that your personal assets may be seized to pay off the company’s debts.

There are two main types of director liability: civil and criminal. Civil liability means that you can be sued by the company or by creditors. Criminal liability means that you can be charged with a crime.

Director liability is based on the principle of corporate veil piercing. This principle states that the directors of a company are personally responsible for the debts and other liabilities of the company.

The courts will usually only pierce the corporate veil if there is evidence of fraud or misrepresentation. However, in some cases, the courts will pierce the corporate veil even if there is no evidence of fraud or misrepresentation.

If you are a director of a company, it is important to understand your personal liability for the debts and other obligations of the company. You should seek legal advice if you have any concerns about your personal liability as a director.

What is the Law Behind Personal Asset Seizure for Omission?

In Australia, personal asset seizure for omission is governed by the Corporations Act 2001 (Cth) (the Act). Section 588G of the Act states that a director of a corporation commits an offence if:

(a) the director is aware that there is a material risk that the corporation will become insolvent; and

(b) the director fails to take reasonable steps to prevent the corporation from becoming insolvent.

The maximum penalty for this offence is 5 years imprisonment and/or a fine of $220,000.

However, section 588G(2) of the Act provides a defence if the director took all reasonable steps to avoid the commission of the offence. In order to rely on this defence, a director must prove that he or she:

(a) was not aware of the material risk when the duty under subsection (1) arose; or

(b) took all reasonable steps to ensure that the corporation would not become insolvent.

When Can Personal Assets be Seized for Omission?

When Can Personal Assets be Seized for Omission?

The law on personal asset seizure for omission is complex and ever-changing. However, there are some general principles that can be relied upon. First, personal assets can only be seized if the omission is considered to be a criminal offence. Secondly, the courts must be satisfied that there is a real risk that the individual will abscond or commit further offences if their assets are not frozen.

Thirdly, the courts must also be satisfied that there are no other less intrusive measures available which would adequately protect the public interest. For example, a court may order an individual to surrender their passport or report to the police on a regular basis as opposed to seizing their assets.

It should be noted that even if all of these conditions are met, the court still has discretion as to whether or not to order asset seizure and may take into account any mitigating factors such as the person's age, health or family circumstances.

What Are the Risks Involved?

Many people are surprised to learn that, as a corporate director, they can be held liable for the debts of the corporation. This is because directors have a fiduciary duty to the corporation and its shareholders. If a director fails to meet this duty, they may be held personally liable for any resulting losses.

There are a number of risks that directors need to be aware of, including:

1. Personal asset seizure: If a company goes into debt, creditors may attempt to seize the personal assets of its directors in order to recoup their losses. This includes bank accounts, property, and even wages.

2. Jail time: In some cases, directors can be charged with criminal offenses if their actions (or lack thereof) contribute to the financial downfall of the company. This could result in jail time and/or heavy fines.

3. Shareholder lawsuits: If shareholders suffer losses due to the actions (or inaction) of directors, they may file lawsuits against them in an attempt to recover those losses. These lawsuits can be costly and time-consuming, even if the directors ultimately prevail.

4. Reputation damage: A director’s reputation can be seriously harmed if their involvement in a company’s financial problems becomes public knowledge. This could make it difficult or impossible to find work in the future as a corporate director.

5. Loss of control: If a company goes into debt or faces other financial problems, its directors

How Can a Director Protect His or Her Personal Assets?

As a corporate director, you may be held liable for damages if it is proven that you knew about or had reason to know about an issue and failed to take reasonable steps to address it. This is known as the "business judgment rule." To protect your personal assets from seizure in the event of liability, it is important to:

-Maintain insurance coverage: Directors and officers liability insurance can help cover the cost of any legal action taken against you as a result of your actions (or inaction) as a corporate director.

-Create a liability shield: If your company is sued, your personal assets may be protected if there is a corporate veil in place. This veil can be created by incorporating your business or forming an LLC.

-Know the risks: Be aware of the potential risks associated with your role as a director. Make sure you are up-to-date on any compliance issues and understand the consequences of non-compliance.

-Document everything: Keep detailed records of all board meetings and decisions made. This will help show that you were acting in good faith and following best practices.


Directors should be aware of the possible personal liability they face for omitting to take certain actions. Even if a company or organization is found liable, directors may still face personal responsibility for their failure to act. It is important that directors understand the risks and liabilities associated with director liability and how it could affect them personally in terms of personal asset seizure. Through proactive risk management practices and knowledge on director liability, organizations can protect themselves from potential legal issues related to omission.

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