ATO Payment Arrangements and Negotiations

For a large number of companies, the ATO is a major creditor. This can often result in serious consequences, including the ATO:

• Claiming general interest charge and penalties, which will increase a company’s tax debts;
• Issuing Director Penalty Notices which make the directors personally liable for the company’s PAYG Tax and superannuation;
• Issuing Garnishee Notices to the company’s bank(s) or debtors requiring them to pay funds held on behalf of or payable to the company to the ATO; and
• Commencing legal action to place the company in liquidation.

What Should Company Directors Do

It is important for companies which fail to pay their tax debts to be proactive in dealing with the ATO. If negotiations are not commenced regarding a payment arrangement, the ATO is more likely to take recovery action.

We commonly assist directors deal with debts owed to the ATO. Often this involves putting a proposal to the ATO for a payment arrangement including asking the ATO to reduce interest and penalties.

We recommend that company directors are proactive in dealing with the ATO. However, we also provide assistance where a company has significantly overdue tax debts. This includes where the ATO has already taken recovery action.

Examples of Successful Negotiations with the ATO

We assist in negotiating numerous payment arrangements for companies with the ATO each year.  Some of the matters we have successfully dealt with in the past are as follows:

• We assisted a large transport company negotiate its 9^th payment arrangement with the ATO. This related to debts totalling several hundred thousand dollars and included the ATO writing off interest and penalties which it had charged.
• We provided advice and assistance to a group of civil contracting companies. This included assisting to negotiate a payment arrangement with the ATO.  And the ATO also withdrew an application it had made to Court to liquidate the company.
• We assisted a company’s directors negotiate a payment arrangement with the ATO in respect of very significant amounts claimed by the ATO. The ATO was claiming debts owed by the company and also its directors as a result of Director Penalty Notices issued.
• We have on numerous matters assisted a company’s accountant put forward a proposal for a payment arrangement to the ATO. We do this where we consider that it is warranted for the accountant to do so, rather than the company engaging us to make the proposal.

Information and Advice

If you wish to obtain advice or assistance regarding any of the above matters, please contact our Brisbane or Gold Coast. Our experienced staff will be able to assist you.

Business Turnaround

Business Turnaround

Many business owners do not know the break-even point for their business and do not adequately focus on the key drivers of profitability.  This is a significant opportunity for consulting work for accountants to assist directors with:

• Options available to increase revenue or reduce general costs and expenses;
• Options available to reduce fixed overheads, such as seeking to renegotiate lease or finance arrangements or arrange exit strategies if lease or finance agreements are no longer necessary;
• Strategies which may be available to recover or realise amounts from overdue debtors or the sale of other assets, which may not be of core importance to a company’s business;
• Finance options which may be available to provide immediate cash flow; and
• Coaching them to “work on, not in” the business.

We provide advice, guidance and assistance to accountants and company directors in respect of strategies which can be implemented to turnaround a company’s business so that it may trade profitably in the future.

In some circumstances we may also be able to assist businesses in negotiating arrangements so that debts owed to creditors may be paid over time or coming to arrangements with creditors to compromise their debts.  Such arrangements can assist a business with immediate cash flow problems by reducing or deferring current liabilities.

Business Sales

An insolvent company may agree to sell its business to another entity with the insolvent company to then be placed into liquidation at some point in the future.   Such a sale may either be on the open market, if possible, or to a new entity, which may be related.  If the sale is to a related entity then the sale ought to focus on a company’s core business / assets with a view to the new purchasing entity being in a position to trade profitably.

In any sale of a business or assets a company’s directors must comply with their duties, which include acting in the best interests of the company and all stakeholders. Where a company cannot pay its debts, directors’ duties also include having regard to and acting in the best interests of the creditors.  To ensure compliance with a director’s duties, any sale of a company’s business and assets ought to be entered into for fair value and on commercial terms.  This is particularly important in circumstances where a sale to a related entity will not enable all debts of the company to be paid and it is likely that the company will be placed in liquidation at some point in the future.

If a sale is not transacted for fair value and on commercial terms it may disadvantage creditors and give rise to breaches of director’s duties, recovery claims by a liquidator and offences being reported to the ASIC, which may subsequently prosecute directors. This conduct is commonly referred to as “illegal phoenix activity”, however, the ASIC recognises that there is a distinction between “legal” and “illegal” phoenix activity depending on whether the issues of value and commerciality are adequately addressed in the sale.  Accordingly, proper legal and accounting advice ought to be obtained to ensure that sale arrangements are properly structured and do not give rise to “illegal phoenix activity”.  In this regard there has recently been a significant growth in the number of “fringe advisers” who provide advice regarding financial difficulties but are not qualified insolvency practitioners and are unregulated. Certain of these advisers have been associated with “illegal phoenix activity” and this issue is under scrutiny from the ASIC and the ATO which are looking to pursue prosecutions in this area.

The benefits of a sale of business to a related entity may include the directors maintaining control of the business rather than an administrator or liquidator taking control, continuity of the business in the transmission to the purchaser and the directors have the opportunity to communicate and manage dealings with clients, employees, suppliers and financiers.

There are a number of issues to be addressed in a sale of a business including:

• The manner in which a business is valued;
• If a sale is to a related entity, the manner in which consideration is to be paid or provided to ensure that the sale is transacted for fair value and on commercial terms;
• How existing contracts or incomplete projects are to be dealt with;
• The impact of the sale on future dealings with the vendor company’s suppliers;
• The effect of the sale on leases which the vendor company is a party to;
• How will loans and finance agreements be dealt with, including obtaining any necessary approval of the sale by relevant secured creditors;
• Whether some or all employees will be transferred to the purchasing entity and if so what employee entitlements will the purchasing entity be required to assume;
• How the purchasing entity will fund its initial trading costs; and
• Where the sale price for a business is insufficient to pay all amounts which are owed to creditors, the impact of residual personal liabilities which may remain for the directors and how those liabilities may be dealt with, for example any loan account debts owed by directors, personal guarantee debts and ATO claims for PAYG Tax and SGC where Director Penalty Notices have been issued and expired or “lock down” director penalty provisions apply.

Information and Advice

If you are seeking advice or assistance regarding this matter please contact our Brisbane or Gold Coast office for an initial obligation free consultation.

Debt Settlements and Informal Arrangements

Debt Settlements

In some circumstances individuals or companies that are unable to pay all amounts which they owe to creditors may be able to negotiate debt settlements or arrangements with some or all of their creditors in order to avoid bankruptcy or liquidation.

Pearce & Heers specialises in assisting to negotiate these types of debt settlements and informal  arrangements. The approach we commonly adopt is we provide creditors with a full summary of an individual’s or company’s financial position often with an estimate of the position should that party enter into a formal insolvency appointment, which assists creditors understand that a person or company cannot pay their debt in full. We will then generally make an offer of settlement to creditors on that person’s or company’s behalf and subsequently liaise with their creditors regarding the offer, any counter-offer received and if negotiations are successful in preparation of a settlement agreement.

When creditors understand an entity’s financial position and the prospects of recovery should that entity enter into a formal insolvency appointment, they may often be open to negotiating a settlement of their debt for a lower amount, reducing the interest on their debt for a period, or allowing deferred payment of their debt.

Informal arrangements can be proposed quickly and efficiently, however they require acceptance of the proposed settlement offer by each of a person’s or company’s creditors (or possibly the vast majority of creditors) to be successful. If one or more creditors reject a proposed offer the informal arrangement may not be able to proceed. Consequently, proposing such arrangements is more difficult as the number of creditors increases.

Additionally it is generally more likely for this process to be successful if a person or company is able to make an offer to creditors for a significant portion of their debts, although this may not always be necessary.

In considering whether to undertake this process, company directors and individuals must be aware that not all such informal matters will result in a successful outcome, however, it may be a better strategy than an immediate formal insolvency appointment.

If you would like to discuss the options available to you, including negotiating informal settlement arrangements, please contact us for an initial obligation free consultation.

Dispute Resolution and Debt Settlements

We are often approached by individuals or companies that are subject to legal claims or proceedings, or those parties’ solicitors, in circumstances where the individual or company is unable to continue funding the litigation or meet the amount of any judgment which has been obtained or which may be obtained in the future.

Pearce & Heers specialises in assisting individuals and companies resolve litigation and disputes with a commercially-minded approach, which may often benefit both parties to the dispute. As with the negotiation of general informal arrangements with creditors, we commonly do this by providing the other side to a dispute with a summary of an entitles financial position, along with details of any estimated future costs to that entity of defending claims against it and a summary of estimated outcomes should the entity we are acting for be forced to make a formal insolvency appointment.

Whilst there is obviously no certainty of achieving a settlement through this process it provides a further option for parties who are subject to litigation to consider in circumstances where they cannot afford to continue to fund the litigation or meet the amount of any claim against them and it may result in settlement of disputes on commercial terms.

Examples of Arrangements and Debt Settlements we Have Assisted with

We have recently successfully assisted numerous individuals and companies enter into informal arrangements and settlements with their creditors, including in respect of the following matters:

• Assisting a large transport company negotiate its 9th payment arrangement with the ATO in respect of debts totalling several hundred thousand dollars, which included the ATO writing off a portion of the interest and penalties which it had charged the company.
• Assisting a group of civil contracting companies negotiate a payment arrangement with the ATO which resulted in the ATO withdrawing a winding up application which the ATO had filed against one of the companies.
• Assisting a company’s directors negotiate a payment arrangement (from the company) with the ATO in respect of amounts claimed by the ATO, totalling several hundred thousand dollars, which the ATO was claiming against the company and its directors as a result of Director Penalty Notices issued.
• Assisting three partners of a partnership negotiate settlements with their former landlord, substantial supplier and one other creditor.
• Assisting a company and its director negotiate a settlement with the company’s former landlord in respect of a debt owed to the company’s landlord which was for an amount of several hundred thousand dollars and which the director had personally guaranteed.
• Assisting a number of parties negotiate settlements in respect of legal claims being pursued against them, which the parties could not continue to defend given the significant legal costs involved.
• Assisting a debtor negotiate a settlement with a creditor who had commenced bankruptcy proceedings against them for a debt which the debtor could not pay.
• Assisting a number of parties negotiate settlements with their banks in respect of shortfalls suffered by the banks upon sale of properties subject to their securities.
• Assisting a number of property developers in negotiations with secured creditors such that the secured creditors agreed to stay enforcement action to give the development companies time to conduct an orderly sale of properties subject to security.

Advice and Assistance

If you are seeking advice or assistance regarding these types of matters please contact our Brisbane or Gold Coast office for an initial obligation free consultation.

Director Penalty Notice

The ATO can issue a Director Penalty Notice to recover a company’s unpaid PAYG Tax, GST and superannuation from a company’s directors.

There are two types of Director Penalty Notice the ATO can issue.  They can apply as follows.

21-Day DPN – PAYG Tax, GST or Superannuation Unpaid but Returns Lodged Within Relevant Periods

A company is required to:

• Pay PAYG Tax and GST to the ATO by due dates.
• Lodge Business Activity Statements (“BAS”) with the ATO each quarter reporting PAYG Tax and GST payable.
• Pay superannuation by due dates.
• If the company doesn’t pay superannuation by due dates, lodge a Superannuation Guarantee Charge Statement (“SGC Statement”) with the ATO.

Where a company doesn’t pay PAYG Tax, GST or superannuation, but it lodges its BAS within 3 months of being due and SGC Statements when due, the ATO can issue a Director Penalty Notice to the company’s directors.  If this happens directors can be liable for the PAYG Tax, GST or superannuation claimed.  However, directors can avoid personal liability if:

• The PAYG Tax, GST or superannuation is paid; or
• The company is placed in liquidation or voluntary administration within 21 days of the date of the Director Penalty Notice.

“Lockdown” DPN – PAYG Tax or Superannuation Unpaid and Returns not Lodged Within Relevant Periods

“Lockdown” Director Penalty Notices apply where a company doesn’t pay PAYG Tax, GST or superannuation. And also doesn’t lodge BAS within 3 months of being due or SGC Statements by required dates.  If this occurs the directors are automatically liable for PAYG Tax, GST or superannuation and:

• The ATO can issue a Director Penalty Notice to recover unpaid PAYG Tax, GST or Superannuation.
• Placing the company in liquidation or voluntary administration doesn’t avoid liability.  The ATO can issue Director Penalty Notices after a company is already in liquidation or voluntary administration.
• The ATO can estimate a company’s debts for PAYG Tax, GST and superannuation. After estimating the debts the ATO will issue a Director Penalty Notice based on estimates.

In May 2019 legislation was passed to change the date which a company must lodge SGC Statements for directors to avoid being automatically liable for SGC debts.  The dates for lodgement of SGC Statements to avoid liability are now:

What Happens if You are Liable Under a Director Penalty Notice?

If you become liable under a Director Penalty Notice the ATO will treat the debt as it would treat any ordinary tax debt . The ATO can and will:

• Commence legal proceedings against you to obtain a Judgment for the amount of the debt.
• Use the Judgment to issue a Bankruptcy Notice and then subsequently make you bankrupt.
• Garnishee funds from your personal bank account or from your wages.

If a company has multiple directors, the ATO will often target its recovery action at the director it considers has the best ability to pay. The ATO will have information on a director’s personal financial position based on the director’s past Income Tax Returns.

What Can You Do to Avoid Director Penalty Notice Debts?

The following tips will help you avoid liability under Director Penalty Notices:

• Obtain advice at an early stage.  If you call us we can advise on risks associated with the continued trading of your company.
• Lodge BAS and SGC Statements on time or at worst within the timeframes set out above.  If lodgements are made but tax debts are not paid you still have 21 days from the date of a Director Penalty Notice to place a company in liquidation or voluntary administration to avoid liability.
• Make sure your postal address is up to date in records maintained by ASIC.  Director Penalty Notices are issued to your personal address as recorded with ASIC.  If you do not receive a notice due to a change of address this is not a defence to a claim by the ATO.
• If a liquidator or administrator is to be appointed, the time to make an appointment is within 21 days of the DATE of the Director Penalty Notice.
• If a Director Penalty Notice is received act promptly in obtaining advice from a qualified professional.

What Can You Do if You are Liable to Pay a Director Penalty Notice?

If you are liable under a Director Penalty Notice then:

• You should promptly obtain advice from a qualified professional.
• You can negotiate a personal payment arrangement with the ATO for the amount of the director penalty debt.  We have assisted numerous company directors negotiate these types of payment arrangements.
• If there are other directors of the company, seek that they make a contribution to the ATO to pay a proportionate part of the liability.
• Consider whether it may be possible to put forward a proposal for a Personal Insolvency Agreement.
• If there are no other alternatives, consider filing for bankruptcy.

Old and New Directors

The ATO can issue a Director Penalty Notice to a director who was a director at the time when unpaid PAYG Tax or superannuation was incurred, but who has subsequently resigned.

The ATO can also issue a Director Penalty Notice to an incoming new director.  Whilst the director is liable immediately the ATO cannot issue a notice until the director has been in office for more than 30 days.

Defences to Claims by the ATO Under Director Penalty Notices

A company’s director will have a defence to a claim by the ATO under a Director Penalty Notice if they can establish that:

• Due to illness or another acceptable reason, they were not managing the company at the time the relevant time.
• They took all reasonable steps to ensure the company paid PAYG Tax, GST or superannuation.
• They took all reasonable steps, to wind the company up or appoint a voluntary administrator .
• Reasonable steps were taken to ensure that the company complied with its obligations to pay superannuation. This defence may be available where directors reasonably thought they were engaging a subcontractor.  However, the subcontractor was subsequently deemed to be an employee to which superannuation provisions applied.

Director Penalty Notices – 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.

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.

Insolvency Advice and Assistance

At Pearce & Heers we commonly provide pre insolvency advice and  assistance to company directors and individuals. The areas we specialise in include the following.

Pre Insolvency Advice – Liquidation

We provide pre insolvency advice to directors of insolvency companies regarding the liquidation process and any risks associated with placing a company in liquidation. In appropriate circumstances we can also advise directors on business sales and legal phoenix transactions. Where we provide advice to a director which we consider excludes us from acting as liquidators we will, if required, assist the director in arrange another insolvency practitioner to be the liquidator.

Pre Insolvency Advice – Bankruptcy

We also provide pre insolvency advice to individuals who wish to file for bankruptcy. This includes assisting people become bankrupt and either appointing a trustees from Pearce & Heers or appointing the Official Trustee from the Australian Financial Security Authority.

Advice and Assistance to Accountants

We are often contacted by accountants whose clients are in financial difficulty who either want to generally discuss their client’s circumstances and issues or who may wish to arrange a meeting with us where we can formally review an individual or company’s position and discuss the options which may be available.

We will generally have an initial discussion or consultation with an accountant at no cost to their client and will be up front with any costs which we may charge for any additional or specific work which we may perform for their client in the future.

General Meetings, Discussions and Advice

If you are the director of a company or an individual facing financial difficulty we can review your circumstances and advise on options available. This includes reviewing any risks which may arise, future strategies and possible formal or informal insolvency appointments.

We can then, if necessary, either provide further assistance in dealing with financial problems or administer a personal or corporate insolvency appointment.

Post Liquidation or Bankruptcy Advice

We commonly assist company directors or bankrupts deal with issues which may arise with a third party liquidator or trustee who has been appointed. This may include:

• Assisting with preparation of required statutory documents for liquidation and bankruptcy;
• Providing advice and assistance in conducting meetings with a liquidator or trustee;
• Reviewing claims which may be pursued against an insolvent’s related entities; and
• Assisting with the resolution of claims or issues which may be brought or raised by a liquidator or trustee.

Director Penalty Notices

We have advised numerous company directors who have received director penalty notices regarding the options available to them. This includes placing the company in administration or liquidation, entering into a payment arrangement with the ATO, or solutions.

Negotiations with the Australian Taxation Office

We are experienced in conducting negotiations with the ATO regarding payment arrangements for individuals and companies and we negotiate numerous payment arrangements with the ATO each year.

Solvency Reviews

We are often asked to review a company’s circumstances and provide either general or formal advice on the company’s current solvency or future risks. In these circumstances we often  also advise company directors regarding future strategies which may be implemented to improve a company’s financial position or to deal with its creditors.

Assisting with Claims by Creditors

We provide general advice and assistance to companies or individuals who are subject to large claims by creditors which they cannot pay. To do this we review relevant circumstances and financial information and come up with a strategy to solve the problem. This may include seeking to negotiate an informal settlement or payment arrangement or assisting with bankruptcy or liquidation.

Assisting with Statutory Demands and Winding Up Applications

Where a creditor has taken formal recovery action by issuing a company with a Statutory Demand and possibly subsequently a Winding up Application, we can provide assistance with reviewing a company’s financial position, considering risks to the company’s director and formulating a strategy to deal with the claim being pursued. This may include negotiating a payment arrangement so a creditor adjourns or withdraws the Winding up Application, appointing a voluntary administrator, or letting the company be wound up if there is limited or no prospect of the company continuing trading.

Information and Advice

If you are seeking general insolvency advice or assistance, please contact our Brisbane or Gold Coast office for an initial obligation free consultation.

Members’ Voluntary Liquidations

The shareholders of a solvent company can place it in liquidation by way of a members’ voluntary liquidation.  This can help distribute the company’s funds in a tax effective manner.

Commencement of a Members’ Voluntary Liquidation

To commence a members’ voluntary liquidation, the majority of a company’s directors must resolve that the company will be solvent (that is able to pay its debts in full) within 12 months after the commencement of the liquidation. This resolution is commonly referred to as a declaration of solvency.

Once a company’s directors have made the declaration of solvency, the company’s members may wind up the company.  This is done by way of a members’ voluntary liquidation by passing a special resolution at a meeting of members that the company be wound up in this manner. The company’s members must be given at least 21 days’ notice in writing of the meeting. For a special resolution to be passed at least 75% members entitled to vote and be present at the meeting must vote in favour of the resolution.

A special resolution can also be passed if all members sign a written resolution resolving that the company be wound up. If the is able to occur it avoids the necessity to convene and give notice of a meeting of members.

The winding up of the company will commence upon the making of the special resolution by members.

Role of the Liquidator

The role of the liquidator is to:

• Realise the company’s assets;
• Pay the company’s liabilities;
• Ensure the company’s tax lodgement and payment obligations are discharged;
• Make a distribution to the company’s shareholders of any surplus funds.

Possible Benefits of a Members’ Voluntary Liquidation

Winding up a solvent company through a members’ voluntary liquidation may have the following benefits:

• It avoids the directors taking the responsibility of attending to the finalisation of the company’s affairs which can be a legalistic and time consuming process;
• It can provide tax benefits to the company’s shareholders. For example distribution of a company’s paid up share capital and pre-CGT reserves may be distributed to members tax free;
• It is a more formal procedure to end a company’s affairs, particularly where they company is unable to be voluntarily deregistered.  In this regard ASIC has strict criteria as to when a company is able to be voluntarily deregistered.

Finalisation of a Members’ Voluntary Liquidation

A members’ voluntary liquidation will be finalised when the liquidator holds a final meeting of the company’s shareholders.  The meeting is convened after all amounts owed to creditors (if any) have been paid and any surplus funds have been distributed to shareholders.  The company is deregistered by the ASIC three months after the final meeting is held.

Information and Advice

We have conducted many members’ voluntary liquidations and can provide advice and assistance in regards to carrying out the process. We generally provide this service for a fixed fee except in the most complicated matters.

If you wish to obtain advice regarding members’ voluntary liquidations, or appoint any of the qualified staff members of Pearce & Heers as liquidator of a members’ voluntary liquidation please contact our Brisbane or Gold Coast office.