As we have set out in previous articles the ATO can make company directors personally liable for unpaid PAYG Tax, GST and superannuation by issuing a Director Penalty Notice.
If a director receives a 21-Day Director Penalty Notice they can avoid liability by using Small Business Restructuring (SBR). But how does this work?
What is Small Business Restructuring?
Small Business Restructuring is a type of insolvency appointment introduced by the Australian Government in 2021. It provides eligible companies with a streamlined and cost-effective way to deal with financial problems by “settling” certain types of debts including tax debts. To enter SBR a company’s directors have to appoint a Registered Liquidator as a Small Business Restructuring Practitioner (SBR Practitioner).
Some of the key features of SBR are:
• Directors stay in control of the company; unlike other insolvency appointments, in SBR directors retain control of the company and the SBR Practitioner has virtually no input on the businesses’ management.
• The business continues to trade; meaning your company can keep operating during the restructuring process, with only very minor restrictions.
• SBR operates to reduce debts: SBR allows creditors, including the ATO, to agree to a repayment plan that will nearly always include reducing the total amount owed.
How Does SBR Avoid 21 Day Director Penalty Notice Liability
It is a specific provision of the Director Penalty Notice legislation that appointing a SBR practitioner within 21 days of the date of a 21 Day Director Penalty Notice will mean a company’s director avoids liability under the Notice. This means that if a director receives such a notice they have to act quickly to firstly ensure their company is eligible for SBR and secondly appoint an SBR Practitioner.
When is a Company Eligible for SBR
There are certain eligibility criteria for a company to carry out SBR which include:
• The company must have less than $1 million in total debts.
• The company must have no material outstanding taxation lodgements.
• The company must not owe any overdue employee entitlements including superannuation.
Often these eligibility criteria are not met when a 21 Day Director Penalty Notice is received and directors will therefore have to act quickly to ensure a company can be eligible for SBR in those circumstances.
Further Information and Advice
Given the serious consequences a Director Penalty Notice may have it is important that you urgently obtain advice if your company is unable to pay PAYG Tax, GST or superannuation. This advice can include reviewing whether Small Business Restructuring is may be able to be used to save your business.
If you need assistance, please contact our Brisbane or Gold Coast office. We will be able to advise how we can assist you in an initial obligation free consultation.
