Tough penalties for Directors involved in phoenix transactions

The Federal Government has introduced into Parliament tough new criminal and civil penalties for Company Directors who engage in illegal phoenix activity. 

Illegal phoenix activity is when a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying its debts, including taxes, creditors and employee entitlements.

The Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 will give the ATO, ASIC and liquidators a range of new powers to target directors, individuals and advisors who conduct illegal phoenix transactions, such as where a Director sells the assets of the company at less than market value (known as a creditor-defeating disposition). 

The other key reforms include:

  • New powers to ASIC to recover property that is the subject of a creditor-defeating disposition and return it to the company for distribution to the creditors; 

  • Preventing directors from resigning and leaving the company with no directors and from backdating their resignation to avoid personal liability;

  • Extending the existing director liability provisions by making directors personally liable for their company’s GST liabilities;

  • Increased power of the ATO to withhold tax refunds where tax lodgments are still outstanding.

Company directors and their advisers should be aware of the proposed changes.

Cove Legal provide specialist advice to clients facing possible insolvency outcomes or facing actual or threatened ATO debt action. If you are attempting to address director personal liability issues, director penalty notices, garnishee orders, winding up applications, statutory demands or need advice on an insolvency situation generally, speak to us today.

Roger Blow, Principal, Ph: +61 8 6381 0327 or roger@covelegal.com.au

This publication is not intended to provide and does not provide legal advice. You should seek professional legal advice relating to your specific situation(s) before taking any action based upon its contents.

 

Changes to Director Penalty Notices

Since April 2019 there has been an important change to the Director Penalty Notice (DPN) regime in relation to a Director’s personal liability for an unpaid Superannuation Guarantee (SG) debt. 

A Director will now be personally liable if a company’s SG liabilities are not remitted within 28 days of the end of each quarter.  Previously a Director had 3 months to report their superannuation and settle the debt without the risk that the ATO would issue a lockdown DPN. 

A Director who fails to lodge SG returns within the 28 day time period will cause the ATO to issue a lockdown DPN, which makes the Director automatically liable for those specific debts and prevents them from escaping liability via a liquidation/administration. 

Directors should note that these changes do not alter the 3 month period allowed for the settlement of a company’s PAYG debt.

Cove Legal are experts in assisting clients with contentious tax matters and insolvency proceedings.  We provide advice on ATO payment plans, director penalty notices, winders and all other aspects of ATO debt recovery action.  Practice Director Roger Blow has acted extensively on behalf of the ATO in Perth and has specific expertise in tax related disputes. 

Roger Blow P: +61 8 6381 0326 or e: roger@covelegal.com.au

This publication is not intended to provide and does not provide legal advice. You should seek professional legal advice relating to your specific situation(s) before taking any action based upon its contents.

Tax Litigation Update

At Cove Legal we are very active in the tax litigation space and two recent decisions particularly caught our eye.

Firstly in Arbuckle v Commissioner of Taxation [2019] WASC 7 Martin J dismissed Mr Arbuckle’s Appeal against the sentence imposed by the Magistrate’s Court.

The Court found that Mr Arbuckle’s long-standing failure to meet his tax obligations did warrant a 6- month suspended prison term. He was released on the undertaking to be of good behaviour for a period of two years.   

In handing down the sentence, Magistrate Huston said he needed to “send a message very clearly to Mr Arbuckle that he needs to be discouraged from engaging in this form of unlawful behaviour ever again.” 

“I also need to send a message to the broader community that the expectations in the legislation for lodging income tax returns and business activity statements is not something to fit in when life is convenient. They have to be prioritised because it’s a legislative requirement to do those things.” 

The second decision is Deputy Commissioner of Taxation v Nore [2019] WADC 27 which saw the District Court dismiss an ATO summary judgment application against Mr Nore on the basis that there was sufficient uncertainties in the ATO’s case (despite the ATO claiming Mr Nore had no defence to the claim) to justify the matters being aired in court. 

Mr Nore had been issued with a Director Penalty Notice with respect to a company that failed to remit superannuation guarantee charges.  There are a number of steps a Director can take in order to avoid personal liability in that scenario. Some of those actions were undertaken by Mr Nore with the Court observing “In the circumstances … I am struggling to see what the defendant could have done.”

The two decisions perhaps sit at opposite ends of the true litigation scale: the Supreme Court showing a willingness to endorse custodial sentences for more serious personal tax omissions whilst the District Court is resisting the Commissioner’s attempts to rely upon his procedural/legislative advantages so as to prevent arguable defences from being properly considered by the Courts.  Both show that tax disputes can very much turn on their own particular facts and circumstances and require specialist guidance.

Roger Blow

P: +61 8 6381 0326 or e: roger@covelegal.com.au

 This publication is not intended to provide and does not provide legal advice. You should seek professional legal advice relating to your specific situation(s) before taking any action based upon its contents.

 

Garnish*

* Verb
1 decorate or embellish
2 serve notice on a 3rd party to seize money  

A garnishee notice is served on a third party that owes you money (or holds money on your behalf), requiring that the third party pays some or all of that money direct to the entity issuing the notice.  In recent years it has increasingly become one of the ATO’s favourite weapons to enforce the payment of outstanding tax debts.

This can include the diversion of wages owed to you by your employer, the contents of your bank accounts, proceeds of sale held by a property settlement agent or amounts owed by trade debtors.

Unlike your average creditor, the ATO does not need to seek a court order to issue and enforce a garnishee notice.  You do need to be served with a copy of the notice.

If you are in the process of a court or AAT appeal in which you are disputing the assessment under which you owe the tax debt, then the ATO is required to consider whether garnishing funds would prejudice your ability to pursue the appeal.  Recent case law suggests that this assessment by the ATO is at times open to challenge, as the taxpayer (and the Courts) may not always agree with the ATO’s assessment as to what will or will not prejudice the taxpayer’s capacity to address their tax appeal.  We have also seen cases where garnishee notices have been improperly issued against joint bank accounts concerning individual debts – so the issue of a notice is not always the end of the story.  Call us if you would like any further help in addressing a garnishee notice.

Cove Legal are experts in assisting clients with contentious tax matters and insolvency proceedings.  We provide advice on ATO payment plans, director penalty notices, winders and all other aspects of ATO debt recovery action.  Practice Director Roger Blow has acted extensively on behalf of the ATO in Perth and has specific expertise in tax related disputes. 

 

Roger Blow

P: +61 8 6381 0326 or e: roger@covelegal.com.au

 

This publication is not intended to provide and does not provide legal advice. You should seek professional legal advice relating to your specific situation(s) before taking any action based upon its contents.

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