As a company director you can only become personally liable for company debts in the following scenarios:
- You have provided a personal guarantee to an individual creditor (or trade supplier);
- The Court declares that you continued to trade the company whilst it was insolvent; or
- You did not complete and lodge your Business Activity Statements with the ATO within 3 months of their due dates.
If you have provided a personal guarantee to a trade supplier or other supplier and the company did not pay the amount due, then the holder of the guarantee can enforce the personal guarantee. If this occurs you will need to pay the debt personally.
If you have placed your company into liquidation or the court has wound up your company, the creditor holding the personal guarantee does not need to wait to see if their debt will be paid by the liquidation of the company assets. If you have provided a personal guarantee andyour company is wound up it is best that you try and reach an arrangement with the creditor who holds the personal guarantee before they commence legal action to collect the debt.
Insolvent trading can only be acted upon by a company liquidator. A director of a company can only be liable for insolvent trading (our Insolvent Trading page) if the company was insolvent when a debt was incurred. Liquidators have an obligation to review the books and records of the company to form a view as to whether the company traded whilst it was insolvent before it was placed into liquidation. Liquidators must report their findings to the Australian Securities andInvestments Commission and to the creditors. In most cases a liquidator will require funding to commence insolvent trading proceedings. Liquidators can fund insolvent trading proceedings from company assets or special funding provided by creditors or ASIC.
ATO Directors’ Penalty Notice
The ATO can issue a company director with a penalty notice under Section 222AOE of the Income Tax Assessment Act. If you receive a Directors’ Penalty Notice from the ATO you must act promptly. You have 14 days from the time the notice was issued to do one of the following:
- Pay the debt in full
- Enter into a repayment payment with the ATO
- Ensure that the company has been placed into a Creditors’ Voluntary Liquidation (within the 14 day period) ( the Creditors’ Voluntary Liquidation Page)
- Place the company in Voluntary Administration (within the 14 day period) ( the Voluntary Administration Page)
If you have not done one of the above within 14 days of the notice being issued then you may become personally liable for the amount listed in the notice. To learn more about ATO Director Penalty Notices (click here) ( the ATO Directors’ Penalty Notice Page)
The information provided in this site is general in nature and should not be relied upon for your specific circumstance. Call us on 1800 731 155 for a free initial consultation to discuss your specific issues.