By now most people would be aware that the rules in relation to Director Penalty Notices have changed. The two major changes are that a Director now has 21 days to respond to a Director’s Penalty Notice, from the date which it is posted not the date in which it is received. The other change is that a director can no longer avoid the consequences by the company entering into a repayment arrangement they must either arrange for the tax to be paid or have the company placed into liquidation or administration.
It is also clear that the ATO is now aggressively chasing outstanding tax debts, particularly in relation to small businesses. The ATO is also increasingly issuing Director Penalty Notices to try and recover outstanding PAYG tax.
An issue that has been around for some time, but it is commonly not understood by even experienced legal practitioners is what happens when a Director gets issued with a Director Penalty Notice for a company that has been deregistered. Often the initial thought is that the Director Penalty Notice is invalid or does not operate.
This view is incorrect. It has been stated in a number of Court cases that deregistration in fact has no effect on the ability of the ATO to issue a Director Penalty Notice.
From a practical point of view however deregistration creates the very serious problem that until a company is reregistered it cannot be put into liquidation or into administration. Under the circumstances where a director is issued with a Director Penalty Notice and the company is deregistered an urgent Application must be made to the Supreme Court and served on ASIC and the ATO requiring the company to be reregistered and liquidated in the same Application. This Application must be heard and the order granted within the 21 days mentioned above.
Our firm, and the writer have particular experience in making exactly these sorts of urgent Applications to the Supreme Court and ensuring that the Orders get made and are registered with ASIC within the 21 days.
We have also recently noticed an increase in the number of Director Penalty Notices that are issued by the ATO under these circumstances.
As soon as a Director Penalty Notice is issued recipients have 21 days to act. If it is in a relation to a dergistered company it is essential that immediate legal advice is sought so the appropriate legal application can be taken and heard within the relevant time period. Prompt attention to this matter allows the serious consequences of company tax turning into a personal liability of the director to be avoided.
If you would like to discuss this issue further please contact the writer.
This article has been prepared to provide a general overview of this topic and is not intended to provide, nor does it constitute, legal advice. You should seek legal advice before acting on or using the content of this article. Should you require legal advice on matters raised in this article please contact Bennett & Philp Lawyers on +61 7 3001 2999.