Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019
The Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 was passed on 5 February 2020 to target and address illegal phoenixing activities. These activities typically involved companies at risk of insolvency disposing of their assets to a new company to continue operations whilst avoiding unpaid debts to old creditors, click here if you would like to learn more. It is important for Directors to be up to date and comply with changes to prevent possible liabilities.
This bill introduces a number of significant reforms that will affect you as a director, including:
- Stricter penalties through new phoenixing offences
- Ensuring directors are held accountable for misconduct by preventing directors from improperly backdating resignation
- Preventing a director from leaving where it would result to the company having no directors
- Extending a director’s liability to cover company’s GST and other taxes in certain circumstances
New phoenixing offences
To provide more protections for creditors in transactions designed to defeat creditors, the concept of a “credit defeating disposition” is introduced. This exists where the disposition of the property:
- are for less than market value (or the best price reasonably obtainable); and
- have the effect of preventing, hindering or significantly delaying property becoming available to meet the demands of the company’s creditors in a winding-up.
Civil and criminal penalties can apply to officers (those who have decision making authority power and acts as an official within the company, including directors) that engage in such activities, this can result in penalties:
For an individual (officers and directors):
- 10 years imprisonment;
- A fine, the amount of which is to be the greater of $945,000 or 3 times the benefit obtained (and detriment avoided) by that individual; or
- Both of the penalties listed above;
For the company, a fine, the amount of which is to be the greater of:
- 3 times the benefit obtained (and detriment avoided) by one or more persons reasonably attributable to the prohibited credit defeating disposition; or
- 10% of company’s annual turnover
New laws on director resignation
With the new laws, Directors will no longer be able to resign at any time in writing, subject to the company’s constitution. This is to prevent directors from avoiding liability and to improve accountability.
Regulating improper “backdating” resignation
If a director or company fails to notify ASIC of a director’s resignation within 28 days of it occurring then the resignation will be deemed to have occured on the day ASIC receives notice. Where there is sufficient explanation for the delay in notification ASIC and the court will have the discretion to determine a director’s resignation date.
Resignation where there are no other Directors
Directors will no longer be able to resign if this leaves the company without a Director, unless it is a winding up of the company. Similarly, the removal of a director through a member’s resolution will be void if it leaves a company without a director. To accommodate temporary absences of a director, where a director is appointed on the same day as the resignation, the resignation will still be in effect.
Directors are now personally liable for GST
From 1st April 2020 directors can now be personally liable for GST under certain circumstances. This is extended to:
- Unpaid Luxury Car Tax (LCT)
- Wine Equalisation Tax (WET).
- Unpaid superannuation and withholding Tax (under the extension of current laws).
What is the penalty?
Where a company’s tax return has not been lodged, the Bill will allow the Commissioner of Taxation (Commissioner) to estimate the amount of GST, LCT and WET owing and make the director liable to pay the estimate through the director penalty regime under certain circumstances. If a company fails to pay their GST the Commissioner can issue a Director Penalty Notice (DPN). A director can avoid the penalty if they either pay the GST, place the company in liquidation or voluntary administration, within 21 days of the DPN being issued. The Commissioner is also able to retain tax refunds where the director has failed to lodge a return or provide other information that may affect the amount of a refund.
How can I protect myself as a Director?
It is crucial for Directors to have processes in place to ensure that tax lodgements and payments are up to date. It is important that Directors are up to date with new changes in regulations and ensure that they are complying with their obligations under the Corporations Act at all times.
If you would like to know more on how these new laws may affect your company and your liabilities as a director then act immediately by seeking the help from professionals. Call Australian Company Liquidations on 1800 981 070 for a FREE initial consultation now.