WHAT IS A DIRECTOR PENALTY NOTICE
The Australian Tax Office (ATO) is able to send a Director Penalty Notice to a company director which makes the director personally liable for two company tax debt types. Company directors can become liable for Pay As You Go tax (PAYG) and Superannuation Guarantee Charges (SGC) through a Director Penalty Notice. This article offers directors a comprehensive overview of what circumstances lead to a Director Penalty Notice and what to do when one is issued.
Australian laws tightened in 2012, making it easier for a director to become personally liable for company tax debts. This was intended to change the approach company directors took towards tax debts and encourage responsible actions. The scope of the Director Penalty Laws was widened, as was the personal liability of directors. Legal action under a Director Penalty Notice cannot be taken against your company if you keep your Business Activity Statement (BAS) returns up to date and lodge them on time. Failure to do this, however, may result in the ATO issuing a Director Penalty Notice.
Director Penalty Notices can take two forms. A ‘traditional’ Director Penalty Notice provides the director with 21 days in which they can take action to avoid the forthcoming personal liability. A ‘lockdown’ Director Penalty Notice, however, automatically makes the director personally liable for any PAYG or SGC in the event of company returns not being lodged on time. Once a ‘lockdown’ Director Penalty Notice has been served, the director cannot avoid the subsequent liability.
In the event of a traditional or 21-day Director Penalty Notice, the director has four options:
- Pay the company debt
- Put the company into Liquidation
- Put the company into Voluntary Administration
- Create a payment arrangement with the ATO
As soon as a director receives a traditional or 21-day Director Penalty Notice, they should contact an advisory body to discuss their best options moving forward.
Since June 2012, a lockdown Director Penalty Notice now covers a wider remit within which a director can assume personal liability. This includes:
- The Superannuation payable to employees (under the Superannuation Guarantee law)
- Directors becoming automatically personally liable when PAYG and SGC debts go unpaid and/or unreported for three months
- Restricted access to PAYG and withholding credits
- Backdating personal liability on behalf of the director for PAYG liabilities when they go unpaid and/or unreported for three months beyond their due date.
The ATO must estimate the amount of tax owed by a company in the absence of lodged returns before issuing the Director Penalty Notice. A newly appointed company director is not personally liable for company debt until 30 days has passed. A director who has suffered from an illness which prevented their participation in company management may defend themselves against the notice, as too can a director who can prove they took all reasonable steps intended to ensure the company’s compliance with taxation obligations. You cannot ignore a Director Penalty Notice and should it go to the wrong address in the event of the director moving house but failing to update the ATO, you are still liable.
If you have received a Director Penalty Notice, either traditional or lockdown, contact Menzies Advisory immediately for comprehensive, confidential advice on how to proceed.
Menzies Advisory in Gold Coast Brisbane Melbourne and Sydney are specialist Liquidators
Menzies Advisory in Gold Coast Brisbane Melbourne and Sydney are specialist Liquidators
Registered Liquidators are experienced accountants, licenced and regulated by the Australian Securities and Investments Commission (ASIC). They are appointed to take over the running of insolvent or failed companies and oversee the final period before all affairs are finalised and the trading body is dissolved. Registered Liquidators must be appointed in the event of a Creditors Voluntary Liquidation to resolve any debts accrued by the company in the most efficient way possible. A Creditors Voluntary Liquidation (CVL) is the most common liquidation appointment type. In the event of a company entering insolvent external administration through CVL, it is the task of a Registered Liquidator to manage the finances and affairs of the body in a fiduciary capacity. After an Extraordinary General Meeting between the shareholders of a company, a Special Resolution will be passed which symbolises the instigation of the process by which the company will be wound up: liquidation. The directors, creditors and shareholders then step away from the organisation which has entered liquidation and their responsibilities are passed to a Registered Liquidator. This professional winds up all ongoing affairs which can include the collection of any outstanding debts and the disposal of company-owned assets. A Registered Liquidator must provide a document titled Consent to Act as Liquidator before they are appointed. Throughout all liquidations, the Registered Liquidator must file relevant documents with ASIC as well as providing ASIC with their yearly return. This enables the Commission to ensure only the highest quality of Registered Liquidators are operating and providing services throughout Australia. ASIC keeps a Register of Liquidators under the Corporations Act 2001 upon which every person is provided with a Registered Liquidator Number. In order to be registered, the person must demonstrate their relevant qualifications, experience, abilities and knowledge. Each registration is valid for 3 years, after which the Liquidator must reapply to maintain a valid license. All Registered Liquidators hold an accountancy degree as well as valid membership to the Institute of Chartered Accountants and/or CPA Australia. In the event of an organisation becoming insolvent, the appointment of a qualified, experienced and professional Registered Liquidator will ensure the subsequent process of winding up the company is completed correctly and responsibly. A Registered Liquidator is capable of completing this complex task efficiently and with minimal unnecessary stress to the directors and shareholders. For more information, contact Menzies Advisory Liquidators & Receivers where our Principal is a Registered Liquidator, Official Liquidator and has been a Certified Practicing Accountant for over 35 years.
Sometimes shareholders and company directors decide to cease trading despite the continued viability of the company. When this decision has been made, it is best to bring in external administrators to complete the Members’ Voluntary Liquidation process. By hiring qualified and experienced professionals, the process of finalising all company affairs, deregistering your company and the distribution of remaining funds amongst shareholders will be completed in a timely, commercially beneficial and legally correct fashion. While the terms ‘administration’ and ‘liquidation’ are most often associated with insolvent companies, it is also possible for the affairs of solvent companies to be wound up in this matter. There are various reasons why a business may choose to wind up rather than be sold as a going concern or continue trading. These include: Redistributing capital tax free Restructuring a company Business is no longer trading/required Bringing a company to its legal end – once deregistered it cannot be reinstated When a reason is decided upon, the majority of directors are obliged to sign a Declaration of Solvency form, stating the company is in a position to pay all existing debts within the upcoming year. Dormant companies may also be deregistered through this external administration process. Winding up a solvent company through external administration is easier and simpler than an insolvent company because, by definition, the company is in a position to repay any and all outstanding debts. 75% of company members are required to vote in favour of bringing in an external administrator at a meeting in regards to the Special Resolution. Once a company has entered the Members’ Voluntary Liquidation, the company can begin to be wound up by an external administrator. The appointed administrator will meet with any creditors and take care of any legal paperwork with the court, government and ATO. Once a company has been wound up, the remaining value of the assets can be distributed among shareholders. At this point the company will be legally deregistered. The external administrator is, by definition, independent and impartial. Their sole task is to preserve the company’s assets, comply with all legal obligations and return all funds to creditors and/or shareholders. Therefore, the external administrator cannot be someone with a conflict of interest or some form of duty within the company itself. Impartiality ensures the correct protocols are followed and the liquidation is completed in compliance with all laws. If you are considering placing your solvent company into voluntary external administration, contact Menzies Advisors today and find out more about how our expert liquidators and administrators can help wind up your company as quickly and commercially successfully as possible.
Menzies Advisory in Gold Coast Brisbane Melbourne and Sydney are specialist Liquidators
Menzies Advisory in Gold Coast Brisbane Melbourne and Sydney are specialist Liquidators
Menzies Advisory in Gold Coast Brisbane Melbourne and Sydney are specialist Liquidators
Menzies Advisory in Gold Coast Brisbane Melbourne and Sydney are specialist Liquidators
Menzies Advisory in Gold Coast Brisbane Melbourne and Sydney are specialist Liquidators
Menzies Advisory in Gold Coast Brisbane Melbourne and Sydney are specialist Liquidators
