Many of us, through personal or business circumstances, are required to take on positions of trust, where the law imposes obligations on us to other people – for instance as an executor of a will or a director of a company.
There are other situations where we are asked to take on these roles. Perhaps a family member overseas needs a local resident director for an Australian company. Or perhaps your good friend asks you to be the executor under a will, because their children are too young to take on that role. How do you refuse? Should you refuse? After all, it is an expression of confidence and trust in you.
In the first situation, where you take on the directorship or executorship through your own personal situation there is usually some tangible benefit such as being a shareholder of the company, or beneficiary of the will. In these cases you have a substantial interest in ensuring the company is properly managed or the will properly administered. Even then, you are taking on serious responsibilities that may cause you stress and anxiety along the way.
However, when the role is taken on only to assist a family member or friend, the director or executor incurs many responsibilities and responsibilities, for few, if any, benefits. In particular, once such a role is taken on, it can be very difficult to escape.
In the case of a will, probate is granted by the Supreme Court, so the executor becomes an appointee of the Court. If the executor subsequently finds the role unpleasant or difficult, for instance if the beneficiaries are in dispute amongst themselves, the executor cannot simply resign. Once appointed by the Court, the executor can only be released by the Court. Until then, he or she must continue to perform the duties of the role, however difficult or onerous.
It cannot be assumed that the Court will release the executor simply because it is asked to do so – at the very least the Court will require that there is some other competent and appropriate person willing and able to carry out the executorship.
The Company Director
In the case of company directorships, resigning has recently become much harder. Since February 2021, under a new section 203AB of the Corporations Act, a director cannot resign if the company will then be left without any directors at all. The purpose of this new law is reasonable enough – if the directors of a company have managed it incompetently, let alone fraudulently, they should not be able to escape accountability simply by jumping ship.
The only exceptions to this rule are when the last director has died, the company is being wound up or is under external administration, or when the last director never consented to their appointment as a director.
However, as is often the case, there are consequences that appear to have been unanticipated – at least to the bureaucrats who framed the new law and the legislators who passed it.
For instance, take the case of the director who has accepted appointment as a director of the Australian subsidiary of an overseas company. If that director becomes concerned about the way the company is being operated by its offshore managers, he or she should resign. As a result of the new law, that will not be possible if it means the company will be left without directors.
Another case is where the directors of a company recommend a course of action that requires shareholder approval, but the shareholders do not give the necessary support. If the issue is serious enough, and the directors are firm in their opinion, their position is untenable – they must resign. But under the new law that is no longer possible.
None of this is to say that you should NEVER accept an appointment to help family and friends – but think carefully before you do. It is much easier to get into these positions than it is to get out of them.
What should you consider before taking on the role of Company Director?
If you are contemplating accepting a Company Director role, you need to do your due diligence to ensure it is an organisation you want to be associated with.
Some of the issues you need to take into consideration include:
- The quality, skills and experience of senior management such as the CEO & other Directors.
- The financial track record of the company including any borrowing arrangements.
- Whether their organisational values align with yours.
- The company risk & governance framework.
- The formal responsibilities of the Director.
What should you consider before taking on the role of Executor?
Becoming an executor is a larger responsibility that many people realise, therefore it is vital to consider the responsibilities involved before agreeing to take it on.
Some of the factors you need to take into consideration include:
- The time commitment. Generally the larger the estate, whether in terms of property, assets or beneficiaries, the more time consuming it will be.
- The level of complexity involved. It is the executor’s role to ensure all the testator’s affairs are taken care of according to their wishes such as their financial arrangements, the assessment of assets, bequeathing of personal belongings and more.
- Potential conflict. It is important to review the will and see if there is anything that might indicate a future contesting of the will (such as unequal distributions to children) and evaluate whether you are prepared to manage any potential disputes.
- The immediacy of the role. Upon becoming executor you need to discuss the will & the testator’s wishes, ensure you have access to all relevant contact details, a copy of the will, letter of intent, powers of attorney and other relevant documentation.
- How you will be paid. Each state has laws determining how an executor is paid. It can be by the hour, as a flat fee, or as a percentage of the estate. In addition, there may be an “extraordinary fee” if an unusual amount of work is involved. The testator is also able to outline how they want the executor to be paid in the will.