Director Penalty Notices
Have you recently been served with a “Director Penalty Notice”? These can be issued by the Australian Taxation Office or the Office of State Revenue. They are typically issued by these Government Departments to recover various classes of outstanding taxes, such as Pay-As-You-Go and Payroll Tax.
These Notices give the Director fourteen (14) days to undertake one of the following options:
1. Pay the debt in full;
2. Reach a payment arrangement with the Government Department;
3. Place the company into Voluntary Administration; or
4. Place the company into Voluntary Liquidation.
Failure to comply with the Notice regarding the above options within the 14 day period renders the Director “personally liable” and therefore places all the Director’s personal assets at risk.
You can be pursued personally and if left unattended can be declared bankrupt. Why unnecessarily expose yourself to such risk and put everything on the line?
If you do receive such a Notice you should immediately seek advice from an insolvency professional to can discuss the options so as to mitigate any personal exposure.
We have advised and acted for many Directors in these situations and understand the anxiety levels that often come when a Notice is received. It can also be a sign that the financial position of the business is precarious and it is important that Directors adequately discharge their duties under the Corporations Act.
It is also important that you ensure that you keep your residential address updated on the Company’s register as maintained with the Australian Securities and Investments Commission (“ASIC”). It is this database that will be used to identify your residential address and if it is incorrect, then you are likely still to be deemed to have received the Notice even though it may have gone to a former address.
Trading Whilst Insolvent
There are both civil and criminal offences for a Director if a Court determines that the Director has allowed the Company to be traded whilst it is insolvent. Most importantly if found guilty, then the Director’s personal assets are able to be pursued as compensation to the Company’s creditors.
Directors should be aware that they have a clear duty to prevent this and if they are encountering difficulties in paying their debts as and when they fall due, they should seek immediate advice from professionals that have necessary expertise in this dynamic area. We advise Directors in this position on a regular basis on the most appropriate manner in which to mitigate their risk in allowing a Company to continue to be traded.
Personal Guarantees
Have you been required to give guarantees in relation to the conduct of the Company? They can typically be required where leases and trade accounts are involved.
It is important to recognise that should a Company encounter financial difficulty, then ultimately these guarantees could be called upon which can expose you personally to pay the debts incurred by the Company. We regularly assist Directors in understanding the likely ramifications should this occur. We also take a proactive role in working with Directors to achieve practical solutions when considering and giving guarantees. In addition, we also work closely with other professionals to develop sound strategies regarding structuring of a Company and Director’s affairs from inception.
There are obviously other areas of consideration for Directors. Whilst we believe that careful consideration should be given to being appointed a Director, we also recognise that certain events can occur during a Company’s life cycle which sometimes are outside of the Director’s control. We seek to provide Directors with the practical advice and solutions required in an ever changing and dynamic regulatory environment.