Personal Liability Of Directors

Recent legislative changes have expanded the Director Penalty Notice (DPN) regime to include superannuation guarantee contributions (SGC).

A director can incur a director penalty equal to the company SGC liability even where the liability is not reported. The liability is a parallel liability for the company and the director themselves. As one component of the SGC is an interest component, the liability can grow quickly.

This change will allow the ATO to garnishee the director's personal bank accounts. Recovery of the penalty can only occur 21 days after the issue of the DPN. Any monies recovered are applied to the benefit of the employee. The DPN may be issued to the director's residential address or to their registered tax agent.

There are also new lockdown measures which seek to address the problem of directors who know that the company is failing to pay liabilities but are content to take no action until the DPN issues, knowing that they could put the company into voluntary administration or liquidation and avoid personal liability.

The lockdown measure removes the director's right of remission from three months after the penalty is incurred unless the company liability is reported to the ATO within three months of when it should have been reported. Failure to report will mean that the liability can't be removed unless the debt is paid.

The measure is not retrospective but does impact any penalties already incurred. There is no excuse if the company doesn't have the money to pay the liability, however there are some defences which include:

• the director didn't manage the company due to illness etc;

• the director took all reasonable steps to get the company to pay the liability;

• directors can ask the Commissioner to consider their defence even where there are no legal proceedings on foot;

• the director formed the reasonable belief that the employees were merely contractors.

From 30 June 2012, a new measure was introduced to address the so called pay as you go withholding (PAYGW) non-compliance tax. In some cases, directors were asserting the company had failed to pay their withholding to the ATO whilst claiming a refund of their instalments. This new measure will stop these claims being made. The provision could potentially apply to associates of the directors.