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Important information for Directors regarding personal liability

PIERCING THE COMPANY VEIL.

As a result of the passing of the Tax Laws Amendment (2012 Measures No.2) Bill 2012 on 27 June 2012, Directors of companies served with a Directors Penalty Notice (DPN) for unpaid PAYG and superannuation will become personally liable to pay those debts.

Further, where the PAYG and superannuation guarantee amounts are unpaid, or unreported, for more than three months after the due date, Directors will not be able to avoid liability for these debts even if the company is placed into liquidation or voluntary arrangement .

HOW IS THIS DIFFERENT FROM THE PREVIOUS REGIME?

In the past, the ATO could only enforce a personal liability on a director for PAYG debts if the Director had been issued - and did not act upon - a Director Penalty Notice (“DPN”). Directors had the opportunity to avoid personal liability by acting within a period of 21 days and either

  • paying the debt;
  • appointing a voluntary administrator; or
  • placing the company into liquidation

If the director did not action one of these options within the 21 day period, that director became personally liable for the company’s debts.

WHAT DO THE CHANGES MEAN?

With the new legislation, the main changes that have come into effect are:

  • the DPN regime has been extended, and now encompasses both PAYG debts and superannuation guarantee charge debts;
  • the ability to avoid personal liability through placing a company into voluntary administration or liquidation is no longer an option. The new laws require a Director to report and pay the PAYG and superannuation debts within three months of the due date, otherwise they become automatically liable for the debts;
  • the ATO now has the ability to estimate the PAYG and/or superannuation debts, and issue a DPN based on these estimates, if the company does not report its debt by the due date.

There are also ramifications for the personal taxation returns for Directors (and their associates) where their company has unpaid PAYG debts. Specifically, as a result of the Pay As You Go Withholding Non-compliance Tax Bill 2012, passed at the same time on 27 June 2012, Directors (and their associates) may no longer be able to claim a PAYG credit in their personal taxation returns where the company (of which they are the director, or an associate of a director) has not paid that debt.

WHAT SHOULD DIRECTORS DO?

There are limited defences available to Directors of a company who incur such debts, including newly appointed Directors (who are given a 30 day grace period before such laws apply). Therefore, it is imperative that Directors now pay close attention to their financials and cashflows to ensure that sufficient funds are available to meet their statutory obligations.

In particular Directors should:

  • ensure that their financial reporting and management systems are up to date, and up to speed, providing accurate and timely information on the performance of their business so that they can pick up on any early warning signs and take action accordingly;
  • work through what-if scenarios at the time of annual budgeting and forecasting to ensure that a clear plan of action is activated swiftly in the event of poor or deteriorating business results;
  • keep communication with suppliers and trading partners open to ensure that, in the event of cashflow issues, they have ability to negotiate on trading terms/etc; and
  • be aware that one possible result of the tax law changes may be a constriction of credit, as Directors re-prioritise payments between supplier accounts and the ATO, so increased vigilance on cashflow management will be key

Bentleys Corporate Recovery (BCR) is a leading Australian insolvency and reconstruction firm. Our specialist team has extensive experience in personal and corporate insolvency and works with clients, stakeholders and financiers in major cities and regional areas across the country. Our directors and 30+ strong team across the Brisbane and Sydney offices have the professional credentials and demonstrated capacity to handle matters of all sizes with efficiency and professionalism. We work together with our clients to deliver solutions that optimise outcomes>

For more information, contact:

Darrin Paine|Corporate Recovery Darrin Paine
Corporate Recovery
02 8078 2100



 

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