Phoenix Companies - Part 2

Posted on 22 October 2012

In Part 1 of our blog on the new laws governing director duties and fraudulent phoenix activity, we addressed the financial impact phoenix activity has had on employees and the economy, as well as outlining the objectives of the Commonwealth government's new scheme which is specifically designed to reduce phoenix companies by ensuring that directors will be held personally liable for company debts.

In part 2 of our blog on phoenix companies and directors liability, we now turn our focus to the key features of the Commonwealth government scheme and how the new laws impose stricter obligations on directors to ensure that statutory entitlements are paid to employees.  

Key features of the new scheme

From 29 June 2012, directors of companies need to be fully aware of their obligations under the new laws. Below is a table outlining the key features and directors obligations introduced by the new laws:

Director liability under old scheme

Director liability under new scheme

Directors are personally liable for their company’s unpaid PAYG withholding amounts, including estimates of PAYG withholding liabilities.

In addition to liability for PAYG withholding amounts, directors are now personally liable for their company’s unpaid superannuation guarantee charge.

New directors can be liable for outstanding debts if they fail to arrange for the company to take necessary action within 14 days of becoming a director.

A new director is not liable to a director penalty for company debts until 30 days after they become a director.

An estimate can only be made in relation to a company’s PAYG withholding liabilities.

In addition to estimating unpaid PAYG withholding liabilities, the Commissioner can now estimate unpaid superannuation guarantee charge.

The Commissioner may seek to recover a director penalty by issuing a director penalty notice and may commence proceedings to recover 21 days after the notice was issued. 

In addition to the requirement that the Commissioner serve notice on a director, the Commissioner may now also serve a copy of a director penalty notice on the director at his or her tax agent’s address.

A director can extinguish their personal liability by causing one of three things to happen before the notice is issued or within that 21 day notice period:

  • payment of the debt;
  • appointment of an administrator under section 436A, 436B or 436C of the Corporations Act 2001; or
  • beginning the winding up of the company.

The current law continues to apply.

However, where three months has lapsed after the due day for the company liability, and the liability remains unpaid and unreported, the director penalty is not remitted as a result of placing the company into administration or beginning to wind it up.

New directors are not subject to these restricted remission options until three months after they become a director of a company, rather than three months after a debt arose.

A director has a defence in relation to a director penalty if the director had an illness that prevented him or her participating in the management of the company, or if the director took all reasonable steps to ensure compliance.

In addition to these defences, a director that becomes liable to a director penalty for not causing its company to comply with its superannuation obligations is not liable to a director penalty if the company treated the Superannuation Guarantee (Administration) Act 1992 (SGA Act 1992) as applying to a matter in a way that was reasonably arguable and the company took reasonable care in applying the SGA Act 1992 to the matter.

Company directors and their associates are entitled to PAYG withholding credits withheld by the company from a withholding payment made to them, such as salary, regardless of whether the company has paid the PAYG withholding amounts to the Commissioner.

Company directors and their associates who are entitled to a credit attributable to a payment made by a company that has failed to pay amounts withheld under PAYG withholding to the Commissioner, can be liable to pay PAYG withholding non‑compliance tax.

Contact the friendly team at Dooley & Associates if you need legal advice.