It may be possible to place a company in liquidation and avoid liability under a Director Penalty Notice. However, there may be risks associated with a company liquidation and there may be better options available.
In this article we look at three steps you should take when considering whether to place your company in liquidation to avoid Director Penalty Notice liability.
The different types of Director Penalty Notices
There are essentially two types of Director Penalty Notices issued by the ATO, where a company fails to pay superannuation and PAYG Tax:
- “Lockdown” Director Penalty Notices – issued where a company has not lodged its Superannuation Guarantee Charge Statements (SGC statements) by the SGC statement due dates and/or Business Activity Statements (BAS) with the ATO within three months of being due; and
- “Ordinary” Director Penalty Notices – issued where a company has lodged its BAS and SGC statements with the ATO within three months of being due.
To avoid receiving a “lockdown” Director Penalty Notice, make sure that your BAS are lodged within three months of being due and, if superannuation is not paid, that SGC Statements are lodged by the SGC statement due dates.
In May 2019 new legislation was passed to change the date upon which company directors become automatically liable for SGC amounts. The new date is the date which SGC Statements are due which are:
|Quarter||Period||Super Due for Payment||SGC Statement Due Date|
|1||1 July – 30 September||28-Oct||28-Nov|
|2||1 October – 31 December||28-Feb||28-Feb|
|3||1 January – 31 March||28-April||28-May|
|4||1 April – 30 June||28-Jul||28-Aug|
Failure to do this will result in the ATO issuing you with a “lockdown” Director Penalty Notice at some stage; and you will be liable for the amount claimed in the notice unless the debt is paid by your company.
If you have lodged BAS and SGC Statements within the time periods set out above and you get a Director Penalty Notice, you can avoid liability under the notice by appointing a liquidator or voluntary administrator to your company within 21 days of the date of the notice.
But before you do this you should follow the following three steps.
1. Seek advice from a qualified professional
Liquidation is only one of the options available. We can assist you consider and if necessary implement other options including:
- Negotiating a payment arrangement with the ATO;
- Business turnaround and restructure;
- Obtaining finance or contributing capital to the company; or
- Voluntary administration.
2. Consider the risks involved with liquidation
As part of the process of deciding what to do, consider the risks associated with the liquidation of your company, as well as those involved with your other possible options.
These risks might include:
- You may be liable for personal guarantee claims by creditors;
- Potential for an insolvent trading claim to be pursued against you in liquidation or other claims against you by a liquidator;
- For building companies, QBCC licencing issues, risks of Deeds of Covenant, and possibly home owner warranty claims.
3. Appoint a liquidator (if appropriate)
If liquidation is the best option, a liquidator can be appointed quickly – often within less than 24 hours.
We have written in the past about the process of liquidation and its effects. However, if all shareholders agree to appoint a liquidator, this can be done by the shareholders simply signing a resolution (which if you wish to appoint us as liquidators, we can prepare).
If a company has sufficient assets to pay some of the costs of liquidation, the directors will not have to pay anything towards the costs of a liquidation.
However, if a company has no assets or is uncertain of which assets may be sold or recovered, we would generally ask the directors to contribute between $5,500 and $10,000 to the company, depending on the size of the company and the number of creditors it has. These funds would meet some of the costs of liquidation..
Received a Director Penalty Notice?
If you’ve received a Director Penalty Notice, it’s best to act immediately. We may be able to assist you in getting a better outcome, so please urgently get in contact with us for a free, no obligation discussion.