Taking it personally: how company directors can intervene early to avoid personal liabilities
Are you consistently lodging your Business Activity Statements?
Are you currently paying your employees’ superannuation entitlements?
As a company director, if you answered ‘no’ to either of these questions, you could be held personally liable for the amounts you owe.
This means that, in the event of insolvency, the Australian Taxation Office (ATO) could begin legal proceedings to recover the funds from your personal assets – including houses, cars and investments.
Under the old regime, directors would receive a director penalty notice from the ATO if they hadn’t met their Pay as you go (PAYG) obligations. Directors would be personally liable for these amounts.
The ATO could commence proceedings to recover these funds if, within 21 days of receiving the penalty notice, directors had not paid the debt, appointed an administrator or wound up the company.
However, under changes which came into effect on 29 June 2012, the regime has become more onerous.
- First, directors are now liable for outstanding super obligations, in addition to PAYG amounts.
- Second, if PAYG and super obligations are unpaid and unreported for three months, directors automatically become personally liable for the amounts.
- Third, the only way for directors to extinguish their personal liability is to pay the amounts in full. For example, directors can no longer place their company in administration to avoid their debts.
More information (including the technical details) can be found on the ATO’s website here.
In our experience, businesses stop meeting their tax and/or super obligations for a variety of reasons, including to smooth out a challenging financial period. In this situation, directors intend to resume their required payments once trading conditions pick up.
But in putting off meeting your obligations, you’re taking a bet that you’ll be able to cover your outstanding liabilities. This isn’t always the case. Also, under the new regime, you’re taking a bet with your personal assets, which could have major consequences for your quality of life and that of your family and employees.
The best way to address this situation is to intervene early. If you’re not covering your obligations, it could be an early warning sign of underlying issues in your business. The earlier you address your outstanding liabilities, the greater the range of options at your disposal, and the greater your chances of avoiding personal liabilities.
At Macleay Partners, we’re focused on business continuity. We help companies deal with challenges early and effectively, to ensure businesses continue to operate.
If you’re currently having issues in meeting PAYG and super liabilities, we can help. For a confidential discussion, please contact Justin Ward, Director at Macleay Partners at firstname.lastname@example.org.