Illegal phoenix activities: new company director penalty rules coming

This week the federal parliament will consider a bill containing further measures aimed at countering illegal phoenix activities, including holding directors liable for their company’s unpaid GST liabilities.

The bill lapsed with the calling of the federal election earlier this year and has now been reintroduced for debate this week.

At present, if a company does not meet its PAYG withholding and SGC obligations, the Commissioner may recover these amounts personally from a director of the company, via a Director Penalty Notice.

The new bill will extend the director penalty regime to GST liabilities as well. If passed, it will allow the Commissioner to make company directors personally liable for their companies’ unsatisfied liabilities for GST, LCT (Luxury Car Tax) and WET (Wine Equalisation Tax).

The new rules will apply to outstanding GST, LCT and WET liabilities arising from 1 April 2019.

The Senate Standing Committee on Economics had previously recommended that the bill be passed, despite submissions from key industry bodies arguing that existing provisions were sufficient.

As part of the changes, directors will also not be allowed to resign from a company if doing so would leave the company without a director.

Further, if a director resignation is reported to ASIC more than 28 days after the purported resignation, it will only take effect from the day it is reported to ASIC.

The changes aim to curb illegal phoenix behaviour by preventing directors from improperly backdating resignations and from shifting accountability to a “straw director” who has no real involvement in the company.

If the proposals become law, it will provide further incentive for directors to:

• Ensure proper financial management of companies they are appointed to
• Evaluate whether to continue acting as director for companies they do not control
• More carefully consider whether to accept new offers of appointment as director
• Review their asset protection status where they will continue to act as director

Feel free to contact us if you have any questions about this.