Insolvent trading laws to change amid COVID-19 crisis

March 23, 2020 Roger Blow

The Federal Government has announced urgent changes to insolvent trading laws to provide companies with the confidence to continue to trade during the Covid-19 crisis that currently grips the world.

One key change is to temporarily relieve directors, for six months, of the risk of being held personally liable for insolvent trading by the company.

Others include a 10 times increase to the minimum debt amount necessary to seek the winding up of an insolvent company (from $2,000 up to $20,000) and pushing out the period to satisfy any statutory demand from 21 days to 6 months. These are significant and vital amendments given that almost overnight we have seen widespread and deeply damaging developments across almost all markets and sectors.

The ATO has also released information on temporary arrangements (including tax rebates and deferred payments) being introduced to respond to the economic crisis and new Government economic measures are being announced almost daily to try and preserve jobs and allow companies to ride out the storm.

Legal, accounting and financial advisors are needing to update their advice on a daily basis as new measures are announced and new impacts are felt from the virus measures.

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 or an insolvency situation generally, either now or in the future, do get in contact as we would love to try and help.

https://www.afr.com/policy/economy/insolvency-law-to-be-changed-as-avalanche-expected-20200322-p54con

Roger Blow, Principal, 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.

Changes to Director Penalty Notices

July 4, 2019 Roger Blow

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

What to do if you have been served a Director Penalty Notice by the ATO?

May 8, 2018 Roger Blow

If you are a Director of a company and your PAYG and Superannuation Guarantee Charge Obligations are not up to date, you could find yourself the subject of an ATO Director Penalty Notice (DPN) and incur personally liability for those outstanding debts.

The ATO issues DPNs as part of its debt recovery actions and once issued you have 21 days to either:

cause the Company to pay the debt (or pay it yourself); or
appoint a voluntary administrator; or
put the Company into liquidation.

A failure to comply within 21 days will automatically make you personally liable for the unpaid super/PAYG, subject to the limited defences discussed below.

You should also be aware that if the company’s BAS returns are more than 3 months old, the serving of the DPN can give rise to personal liability for the directors for Company tax debts EVEN IF they then put the company into liquidation or voluntary administration within the 21 day period.

Where no returns have been lodged, the ATO can undertake an audit and simply issue an estimate of the debt and then issue a DPN based on that estimate, so a failure to report does not necessarily provide any protection to personal liability.

Under the legislation a director cannot avoid liability under a DPN by claiming they did not receive it – the ATO merely needs to prove that it was properly posted by normal post to evidence receipt.

There are some limited defences to liability arising under a DPN. A Director is not personally liable if they can prove:

they were not capable of acting as a Director of the company during the relevant period that the debts arose and were not paid due to sickness or some other good reason;
they took all reasonable steps to ensure that:
- the directors caused the company to comply with its obligations;
- the directors caused an administrator of the company to be appointed;
- the directors caused the company to begin to be wound up, and
- there were no reasonable steps that could have been taken to ensure that any of the above happened.

Whether a course of action is 'reasonable' and whether there is sufficient evidence to support the argument will vary on a case-by-case basis and requires advice.

Cove Legal are experts in assisting our clients with contentious tax matters and insolvency proceedings and provide advice on ATO payment plans and all other aspects of ATO debt recovery action. Roger Blow acted extensively for the ATO in Perth for over 5 years and has specific expertise in tax related disputes.

If you would like advice or assistance with any legal matters involving the ATO, we would be keen to hear from you.  Please contact:

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