Directors’ liabilities for PAYG tax obligations

As a general rule, directors of companies are not liable for a tax debt assessed on a company.  However, under the Corporations Act, a director may be liable for the debt accrued while the company is insolvent, or a debt that causes the company to become insolvent.

Australian taxation law places a clear responsibility on company directors to ensure they remit pay-as-you-go (PAYG) tax instalments.  The Tax legislation is also clear about the penalties it places on directors when the company has failed to make and remit these instalments to the Australian Taxation Office (ATO).

If a payment arrangement with the ATO has not been entered, an administrator appointed to the company or the company wound up due to the directors failing to remit PAYG, then the directors of a company may be held liable for the totality of the unpaid PAYG.

A director may also be penalised as a consequence of the company committing other tax offences. A director may be subject to additional criminal penalties, if for example, they are a party to some scheme to defraud the revenue of the company, even if there is no personal benefit attained from the scheme.

Apart from their responsibilities to a company, directors should be aware that there are instances where they might be held personally liable for a company’s federal or state tax liabilities. It is unlikely that they can always rely on the general corporation law defence.

For further information regarding directors’ liabilities or tax prosecution, please contact:
Matthew Bridger | e: mbridger@elringtons.com.au | p: 02 6206 1300 http://elringtons.com.au/wp-content/uploads/2011/07/Specialist-accreditaion.jpg

Bankruptcy and Business Management

Background

Mr Watts, an undischarged bankrupt, was disqualified from managing companies.  He applied to the court for a special order that he be allowed to act as director or secretary of several companies, stating his very livelihood was dependent upon his successful application.  Mr Watts was 62 years of age and argued that he would find it very difficult to find another job.  In support of his application, he said that the shareholders of the companies were supportive of his application.

Decision

Mr Watts’ application was refused as he failed to provide any evidence to support his claims.

Under the Corporations Act 2001 (Cth) a person is disqualified from managing a company if they are an undischarged bankrupt.  However in special circumstances, the Act allows a disqualified person to apply to the court for leave to manage a company. In doing so, a person must establish that an exception should be made in their case.

Comment

This case confirms that the consequences of bankruptcy are serious.  It is important to know your rights and limitations if entering into bankruptcy and while a bankrupt.  For further information regarding the obligations of a bankrupt, please read How long am I to be declared a bankrupt?

That said, under certain circumstances, there are grounds under which an undischarged bankrupt can apply to the court for permission to manage a corporation.

For further advice regarding bankruptcy, and directors duties please contact:
Matthew Bridger | e: mbridger@elringtons.com.au | p: 02 6206 1300 http://elringtons.com.au/wp-content/uploads/2011/07/Specialist-accreditaion.jpg

How long am I to be declared a bankrupt?

The term of bankruptcy generally lasts for a period of 3 years. However under certain circumstances, the term can be extended.

For example:

  1. If a bankrupt fails to follow their trustee’s directions, or obtains credit of more than $5.000.00 without disclosing the bankruptcy, the term of bankruptcy can be extended to 5 years.
  2. In more serious cases, when the bankrupt intentionally tries to deceive their trustee or act with the intention to defraud their creditors the period of bankruptcy can be extended to 8 years.

The message is clear – a bankrupt must act honestly and openly with his or her trustee or risk extension of time in bankruptcy.

For further advice regarding bankruptcy, please contact:
Matthew Bridger | e: mbridger@elringtons.com.au | p: 02 6206 1300 http://elringtons.com.au/wp-content/uploads/2011/07/Specialist-accreditaion.jpg