Exten­sion of per­son­al lia­bil­i­ty of directors

Impor­tant changes in the law gov­ern­ing a director’s lia­bil­i­ty for com­pa­ny debts have been fore­cast. The antic­i­pat­ed changes will mean that a com­pa­ny director’s per­son­al lia­bil­i­ty for com­pa­ny debts will be extend­ed to include unpaid super­an­nu­a­tion guar­an­tee con­tri­bu­tions for their companies.

Direc­tors are cur­rent­ly required to cause their com­pa­ny to pay deduc­tion tax­es, such as PAYG. If they fail to do so and receive a direc­tor penal­ty notice issued by the Aus­tralian Tax­a­tion Office, they may become per­son­al­ly liable for the amount of the indebt­ed­ness if the tax­es are not paid with­in the time pre­scribed with­in 21 days from when the notice was issued. The only option avail­able to direc­tors in order to avoid per­son­al lia­bil­i­ty for the debt is to place the com­pa­ny into vol­un­tary admin­is­tra­tion or alter­na­tive­ly have it wound up in liquidation.

Each direc­tor of the com­pa­ny that is a direc­tor at the time the tax lia­bil­i­ty is incurred may be served with a direc­tor penal­ty notice and become sub­ject to per­son­al lia­bil­i­ty. This is the case even if the direc­tor resigned as a direc­tor from the com­pa­ny pri­or to the issuance of the direc­tor penal­ty notice.

The cur­rent law excludes a direc­tor from per­son­al lia­bil­i­ty for unpaid super­an­nu­a­tion guar­an­tee con­tri­bu­tions. It is antic­i­pat­ed how­ev­er that changes will soon be made to extend the lia­bil­i­ty of direc­tors to include a per­son­al lia­bil­i­ty for 9% of each employee’s total salary, inter­est and admin­is­tra­tion charges.

Addi­tion­al­ly, the pro­posed changes will give the Deputy Com­mis­sion­er of Tax­a­tion pow­er to imme­di­ate­ly com­mence recov­ery pro­ceed­ings against direc­tors per­son­al­ly for out­stand­ing PAYG and super­an­nu­a­tion guar­an­tee con­tri­bu­tions of the com­pa­ny that have been out­stand­ing and unre­port­ed for a peri­od of three months. These pro­ceed­ings can be com­menced against direc­tors with­out a direc­tor penal­ty notice first being issued.

Defences

A direc­tor may avoid per­son­al lia­bil­i­ty if they can estab­lish that:

1. due to ill­ness or oth­er good rea­son the direc­tor was unable to take part in the man­age­ment of the com­pa­ny; or
2. the direc­tor took all rea­son­able steps to com­ply with their obligations.

For fur­ther infor­ma­tion in rela­tion to direc­tor penal­ty notices and the pro­posed changes to the law and how they will affect you please contact: