Company directors need to ensure all taxation and superannuation payments are compliant as they may soon face even greater personal financial consequences.
Changes in the Treasury Laws Amendment (Combatting Illegal Phoenixing) Bill 2019 which has recently been passed by both houses of the Australian Parliament will strengthen the Australian Taxation Office’s powers to pursue directors and make them personally liable for outstanding company debts.
This will make it critical for directors to be fully aware of the financial state of their companies and whether or not their business is paying all of its taxation and superannuation obligations on time.
When the legislation comes into effect, directors will no longer be able to backdate their resignations to avoid becoming personally liable for outstanding tax debt and/ or unpaid superannuation payments, for example.
The primary purpose of the legislation is to further stamp out the practice of Phoenixing, which is a legal loophole that allows companies that owe money to creditors, including the ATO, to be wound up, and then the directors set up an almost identical company to effectively wipe out the debt.
While the laws have a practical impact to safeguard the Federal Government’s bottom line and a flow on effect to help protect other creditors such as suppliers and employees, other elements may burden companies, particularly small businesses.
The Bill received Royal Ascent on February 17, 2020, with some components of the Bill to come into effect from 1 April 2020.