Director Penalty Notices
Directors looking to sell their company or shareholding need to be aware of the risks inherent in Director Penalty Notices prior to completing a transaction. This article outlines what a Director Penalty Notice is and how they can impact on exiting Directors as part of a company or shareholding sale.
What is a Director Penalty Notice?
A Director Penalty Notice generally come in two forms.
The first is when a Director is given 21 days notice to take action to avoid a personal liability for a company’s outstanding Pay As You Go (PAYG) or Superannuation Guarantee Charge (SGC) debts.
The second is a “lockdown” which gives the ATO the power to make Directors personally liable if PAYG or SGC amounts remain unpaid or unreported three months after the due date for lodging a return. When this occurs the Director cannot have their penalties remitted by placing their company into voluntary administration or liquidation.
What Impact Can A Director Penalty Notice Have On an Exiting Director After a Company or Share Sale?
An issue can arise following the sale of a company or shareholding regarding Director Penalty Notices should a Director who has sold their shares in a company, and ceased to be a Director of the company be issued with a Director Penalty Notice. Often when Director Penalty Notice is issued the Director to whom the notice is addressed will ensure that the company either pays the debt, or will potentially put the company into liquidation, voluntary administration, or come to an arrangement with the ATO.
When a former Director who has sold their shares and is no longer a Director of a company receives a Director Penalty Notice they must now rely on the current Directors to place the company into voluntary administration or liquidation, or they will be personally liable. Clearly, it is unlikely for the new Directors to take such action, leaving the former Director significantly exposed.
How to avoid this when undertaking a transaction
Prior to completing the sale of your company or shareholding it is crucial to ensure all of the company’s tax office obligations have been met in full. Further, it is advisable to ensure your particulars (such as your postal address) are up to date with both ASIC and the ATO.
Find Out More
Quinn M&A’s expert team of business transaction advisors can assist you to with all of your business exit planning, divestment, acquisition and valuation requirements. Contact Quinn M&A today on +612 9223 9166 or submit an Express Enquiry to arrange a confidential no cost consultation with one of our Senior Advisors.