What you need to know and do to sleep easier.
Are you a director or thinking about becoming a director of a company? You or your friend may need to know more about the personal liabilities that directors now face.
Personal Liability includes Employee Super
Since 1993, Directors have been personally responsible to ensure their company remits to the Australian Taxation Office (ATO) PAYG withholding amounts.
If withholding tax is not remitted on time, a director can be personally liable for a penalty equivalent to the unpaid withholding amounts. On 29 June 2012 these personal obligations on directors were extended to the payment of employee superannuation entitlements. These legislative amendments now impose a personal obligation on directors to pay unpaid superannuation.
Before the ATO can commence proceedings against a director for unpaid withholding tax or employee superannuation, the ATO must serve a Director’s Penalty Notice or ‘DPN’ on the director and wait 21 days.
The main purpose for the 2012 amendments was to impose personal liability on directors who have not ensured employee superannuation entitlements are covered.
The Director Penalty Notice Regime
Awareness of the operation of recent amendments to the Director Penalty Notice regime will help you to avoid personal liability.
The DPN process provides a mechanism for a director to remit payment of any unpaid withholding tax or superannuation to the ATO by complying with the DPN. Payment must be made within 21 days of service of the DPN on the director. If this is done then the penalty is remitted.
Compliance to a Director Penalty Notice can be satisfied by three means:
- Payment in full or by instalments (with approval).
- Placing the company into voluntary liquidation.
If you fail to take one or more of the above steps the ATO may commence legal proceedings against a single or more directors. Once this occurs there is usually little scope for raising a valid defence. The personal liability imposed places a director’s own personal assets at risk.
No Escape from Personal Liability!
After 30 June 2012, any unpaid liabilities which are unreported to the ATO more than three months after the due date can be subject to sanction. Unless the company pays its liability or ‘Lockdown Director Penalties’, the director or directors will not be able to escape from personal liability by putting the company into administration or resolution to wind up the company.
The onus on persons contemplating becoming a company director is high.
If you have or will become a director of a company after 30 June 2012, you will be given 30 days to ensure the company meets its obligations before becoming personally liable.
In the event you discover the company has not lodged its returns for more than three months, the new legislation provides a further opportunity (three months from the date of your appointment as a new director) to cause the company to either pay the liability, appoint an administrator or wind up the company.
An unfortunate consequence is if you discover that there is already an unpaid liability after becoming a new director of the company, there will be no escaping personal liability by resigning as a director within the 30 day period.
If you have been served or you have a friend or colleague who has been served a Director Penalty Notice, legal advice and an immediate and timely response are required.
If you are concerned about any of the above issues or related matters involving your responsibilities as a director, Bay Legal will be pleased to assist you with the best course of action you should take.
Disclaimer: The information in this article is not intended to be a complete statement of the law relating to the issues raised. Accordingly, no person should rely on this information without first obtaining specific advice from a legal practitioner in the office of Bay Legal.