The release of a Director Penalty Notice can and will result in serious implications for any director of a company in Australia. Your personal assets can be confiscated to pay your company’s debt with the release of a Garnishee Notice if you do not meet the requirements of the law and the Director Penalty Notice. Keeping this in mind, a director should always plan ahead.
Dealing with the ATO is often a business that cannot be predicted. The Australian Taxation Office has a variety of powers that it can use, and it will react differently in many cases. The most notable being, the amount of time it can take before it takes action. Despite debts owed to the ATO, and especially in respect to PAYG tax requirements, where a Director Penalty Notice can be issued in respect to those debts that will result in the directors of a company being personally liable for those debts if arrangements are not made within a very short timeframe, sometimes the ATO does not issue the notice for many months. Counting on this being the case is not advised. Getting advice on what to do if you know release of the notice is pending is. Here is a look at that and other related issues.
- Advice. Getting advice on how to deal with your company if you have received the notice, or know the release of it is imminent, is normally the only option for any director. There is little choice other than to wind up your company and start the process of voluntary administration or liquidation once the notice is released. The notice is released as a result of previous arrangements with the ATO not being met and therefore, there is little chance the debt can be repaid in full, unless you have found a new investor. If you are getting advice at this time, you are already a little late. Thinking ahead, and having a business and personal strategy in advance, is highly suggested.
- Defence. Defense against the application of laws and powers that can be invoked by the ATO to retrieve debts owed by a company after the release of the DPN are limited. Only in cases where the director can prove illness, other such justifiable reasons, or can clearly prove they were not directly involved in the management of the company, will stand up as a defense against the ramifications of the notice. Proving your defense will be a costly and time-consuming task. Through the power to legally transfer those taxation debts onto those individual directors, the ATO will release a Garnishee Notice, which will state the entity that is now coming to confiscate a director’s personal assets to meet the debt. If it appears that an individual has been the director of a company within the last 7 days, they will become a target of the ATO.
- Personal assets. While it is easy to feel that you are protected by a large number of laws relating to the protection of personal assets of directors, careful planning and strategy is suggested if you think your company could potentially slip into a situation of not being able to meet its debts. Personal asset management to avoid or minimise the implications of such a powerful move by the ATO should be considered well in advance.
- Business strategy. Better company asset management to allow your company to survive even the most difficult financial situations, is possible. Knowing how to do this, or get the advice from those who do, should be a standard part of your business strategy. Voluntary administration will mean your company is slipping out of your control, and liquidation means it is just about over.
The ATO is continually becoming more aggressive with the collection of taxes and especially in the case of debts owed. As a business director, you cannot count on it not responding to you and your company’s situation in a very swift and aggressive manner. If your company is struggling, negotiating your situation with the ATO will give you options and some time, in the first instance of problems and accruing debt. It is at this time you should think carefully about protecting yourself and your family’s financial future. If your company cannot meet those negotiated terms, and the DPN is released, your personal assets are in jeopardy.
Author Bio: Tom Mallet is an Australian freelance writer and journalist. He writes extensively in Australia, Canada, Europe, and the US. He’s published more than 500 articles about various topics, including Garnishee Notice.