Director Disputes – Can a Liquidation or a Voluntary Administration help?

This a special blog for Public Accountants. We are going to go out on a limb and guess that you have some corporate clients that cause their BAS and IAS lodgements to be made late. That’ll be largely as a result of the client not getting the necessary information to you on time, or maybe they can’t pay the debt so they think

Well, there are now at least seven good reasons (and growing!) why your clients should stay up to date with their company tax obligations. At the bottom of this post we have linked to a handy Director Information Sheet you can hand out to your clients. Here is a summary, with some additional technical information for you:

1. The traditional (and still valid) 21 Day Director Penalty Notice (DPN)

You may already know that where a company has a Pay As You Go Withholding (PAYG) or Superannuation Guarantee Charge (SGC) debt, then the ATO can issue a DPN giving the director 21 days’ notice of the impending personal liability, giving some options that will result in the Penalty being “remitted” (effectively cancelled). We’re seeing a lot more of these in the last six months.

2. The newer “Lockdown” DPN

Less well known are the Lockdown DPNs, introduced in June 2012, that apply where a company has not lodged its BAS return (for PAYG) or Superannuation Guarantee Charge (SGC) statement (for super) within 3 months of its due reporting date. The Lockdown DPN informs the director that they are instantly personally liable for the amount on the DPN – liquidation will not help them avoid personal liability.

3. GST – beware of proposed legislation

Also currently on the discussion table are plans to expand the DPN laws to cover GST! Why be afraid of items 6 and 7 now? The most recent news laws for DPNs (June 2012) trickily backdated the Lockdown DPN provisions for PAYG deductions and many directors were caught. As DPN law reform has been made retrospective in the past, we’d suggest that if a company is at risk, now is the best time to get lodgements up to date!

Why be afraid of items 6 and 7 now? The most recent news laws for DPNs (June 2012) trickily backdated the Lockdown DPN provisions for PAYG deductions and many directors were caught. As DPN law reform has been made retrospective in the past, we’d suggest that if a company is at risk, now is the best time to get lodgements up to date!

Putting all that together – what’s our current advice?

The essence of our advice remains unchanged, which is:

1. Directors should stay right up to date with BAS, IAS and SGC lodgements with two new addendums:

• Report accurately (to avoid a future BAS amendment);
• If the debt can’t be paid, lodge anyway!

2. If a Director receives a 21 Day DPN, they should act…. within 21 days to either pay the debt or put the company into Voluntary Administration or Liquidation