The current Current Director’s Penalty Notice (“DPN”) Regime:

If a company owes Pay as You Go Withholding (“PAYGW”) Tax, then the Australian Taxation Office (“ATO”) can issue a notice to the Director of a company (also known as a DPN).
In that event, the Director will become personally liable for that PAYGW tax unless the company pays the outstanding debt, or the company appoints an insolvency practitioner, within 21 days of the ATO placing the notice in the post.
It does not matter when the notice is received (or if the Director denies receiving the DPN) – all the ATO need to prove is that they posted the notice, and the company failed to pay the  PAYGW within 21 days, and failed to appoint an insolvency practitioner to administer the company’s affairs.
If they prove this, then the Director is personally liable for the Company’s PAYGW tax debt.

The new powers gained by the ATO as of 13 October 2011:

The Federal Government introduced tax legislation designed to include the Superannuation Guarantee Charge (“SGC”) in the DPN regime.
In essence, if the company is more than 3 month’s late in lodging its reports for superannuation or PAYGW, then the Director(s) are personally liable, and there is no longer any need to for the ATO to post a DPN.
This contrasts with the current regime where upon service of a DPN, a director has 21 days to pay the debt or appoint an insolvency practitioner prior to becoming personally liable. The 21 day notice period is now gone.
This effectively means Directors have even less immunity from the company’s debts, and they can be pursued personally.
It also means that Directors need to be even more careful in ensuring that the company keeps its reporting requirements up to date

The changes have the following effect:

1. The changes apply to any outstanding PAYG owed as at 13 October 2011.
2. If the company has failed to lodge its returns for SGC and PAYG within 3 months of the due date for lodgement, then Directors are now personally liable for their company’s failure.
3. There is no requirement for a DPN to be issued at all, so Directors no longer have the option of appointing an insolvency practitioner within 21 days to escape personal liability.
4. The ATO now have the power to estimate the unpaid SGC where a company fails to meet its reporting obligations. This will allow immediate recovery proceedings (in respect to either a reported or estimated amount) to recover the outstanding debt.
5. Enforcement options include:
   1. third party garnishee orders (which can attach to the company’s bank account and which can in turn frustrate paying employee’s wages, or payments due to suppliers).
   2. formal judgements which could be enforced against the Director’s house and other assets.
   3. the commencement of bankruptcy proceedings in order.
6. The ATO can commence immediate recovery procedures against both the company and the directors where a company fails to comply with its reporting obligations for a period of more than 3 months and its PAYGW and/or SGC liability remains unpaid.
7. Directors (and their associates) are not entitled to PAYGW credits (through the imposition of tax) where the company of which they are a director has failed to remit PAYG withholding amounts. The ATO is effectively closing a loophole whereby directors (and in some circumstances their associates) have been able to personally claim PAYGW credits where the company has failed to remit them prior to it being placed into liquidation.
8. These change make Director’s more exposed to liability for corporate debt, which in turn will impact their ability to seek finance.
9. These proposed changes will provide the ATO with the flexibility and responsiveness to deal with recalcitrant directors by commencing recovery proceedings against the director (in certain circumstances) without further notice.

How Irish Bentley Lawyers can help

Irish Bentley Lawyers have extensive experience in:

1. taxation matters (including representing clients who have been assessed with $39M assessments as part of Project Wickenby).
2. insolvency law (our lawyers study specialised insolvency courses and we represent a number of specialist liquidation Firms.
3. Corporate law, including in particular advice on Director’s liability, and how to implement risk minimisation strategies during periods of financial difficulty.

These recent changes make it imperative that you follow this advice:

1. keep your reporting up to date.
2. contact us as soon as there any warnings issued by the ATO or any concerns about the company’s ability to pay its PAYG and super.
3. Contact us if you bare experiencing any difficulty paying the company’s debts as and when they fall due (that is within the terms of trade set by your suppliers).
4. Be aware that any failure to take prompt decisive action will diminish the prospects of the business continuing and also increase the likelihood of directors becoming personally liable for the company’s debts.

We can advise you regarding:

1. Whether a company is likely to be insolvent or near insolvent;
2. What steps can be taken (if any) to avoid the company becoming insolvent; and
3. If insolvency cannot be avoided or it appears imminent, then we can advise Directors, stakeholders and the  company on risk minimisation strategies.