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Directors Personally Liable |
Apart from the generally recognised risk of personal liability for insolvent trading, directors need to be particularly cautious in ensuring that their company complies with its ATO payment obligations. Directors must cause their company to remit PAYG deductions. If PAYG is not paid and the ATO gives a Director's Penalty Notice, and the company does not pay the amount demanded in the Notice within 14 days, a director will be personally liable unless the director puts the company in voluntary administration. |
A Director can defend a Penalty Notice if ill or for some other reason the Director could not manage the Company, or if the director took reasonable steps to comply with the PAYG obligations. |
Penalty Notices can be given to former Directors. Before their appointment, new directors should obtain written confirmation from the Company that there are no Directors Penalty Notices. In the Fitzgerald Case the Court found that the penalty provisions applied to a person who two months after unremitted PAYG was due had then become a Director of the Company for only 17 days. Nearly three months later when the person was no longer a Director he received a penalty notice from the Commissioner and was found to be liable to pay the tax. |
The Court warned that it is the responsibility of new Directors to make enquiries of relevant Officers of the Company whether there are any monies owing to the Tax Office. If incorrect information is given to such an enquiry there may be a defence against the Commissioner's claim for penalty. |
Paul Clark |
paul.clark@cmlawyers.com.au |
