The recently enacted Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (the Act) could make directors personally liable for their company’s unpaid taxes, or for their company engaging in a creditor-defeating disposition and can prevent a director’s resignation, if the resignation were to leave their company without a director.
Of interest to directors, will be the extension of the director penalty regime to cover unpaid GST liabilities, which represents a significant change to the liability exposure of directors. The Act also contains a package of measures aimed at countering illegal phoenix activity (ie creating a new company to continue the business of a company that has been deliberately liquidated to avoid paying the original company’s debts) and builds on previous government insolvency law reforms.
So, what is new?
The Act introduces four measures to combat illegal phoenix activity.
New phoenix offences have been created to prohibit creditor-defeating dispositions of company property, penalise those who engage in or facilitate such dispositions and allow liquidators and ASIC to recover such property.
2. Improving the accountability of resigning directorsMeasures are being put in place so that directors are held accountable for misconductby preventing directors from improperly backdating resignations or ceasing to be adirector, when this would leave the company with no directors.
3. Making company directors personally liable for the company’s GST liabilitiesThe ATO may collect estimates of anticipated GST liabilities and make companydirectors personally liable for their company’s GST liabilities in certain circumstances.
4. Allowing the ATO to retain tax refunds in certain circumstancesThe ATO may retain tax refunds where a taxpayer has failed to lodge a return or provide other information that may affect the amount the ATO refunds. This ability has been given to the ATO to ensure that companies satisfy their tax obligations and pay outstanding amounts of tax before being entitled to a tax refund.
When do the provisions take effect?
The Act was enacted on 17 February 2020. Schedules 1 (new phoenixing offences) and 2 (accountability of resigning directors) took effect on 18 February. Schedules 3 (GST estimates and director penalties) and 4 (retention of tax refunds) will commence on 1 April 2020.