Tips for Business
Survival
Michael Noon
Director
SRJ Chartered Accountants and
Business Advisors
Insolvent trading
• Director has a duty to prevent the company
trading in an insolvent state
• Directors are required to be aware of the
financial position of the company at the time
of incurring debt
• Number of statutory defences for a Director
against insolvent trading claims
- difficult to rely on
Insolvent Trading (cont)
• Series of Director penalties that may apply
- Civil penalties
- Compensation for amounts lost by
Creditors
- Criminal charges for dishonesty
- Director liability for employee
entitlements
- Director Liability for particular
unremitted taxes
Insolvent Trading
(ATO debts)
• Directors liable for unremitted taxes when the
company has not paid;
- PAYG Withholding amounts
- Alienated personal service payments
• Directors must cause one of the following;
- company to make payment by due date
- make an agreement with the ATO
to pay o/s amount
Insolvent Trading
- Appoint an Administrator of the company
- Begin winding up the company
• Non – action means the Director becomes
personally liable for the debt.
• Director Penalty notice
Director Penalty
Notices
• Penalty notice required to be issued before
ATO can action recovery from Director
• Notice must state;
- unpaid liability
- penalty will be remitted if within 21
days if one of the following occurs;
* Liability has been paid,
* Company enters administration
* Company is being wound up
• ATO not entitled to recover until 21 days
after the issue of the penalty notice.
Director Penalty
notices(cont)
• Penalty notice is served from the time of
posting.
• Multiple Director penalty notices are common
– Parallel liabilities are established.
• ATO can “pick and choose” Directors
• Defences include;
- Illness
- reasonable steps taken
TIPS for Director
Penalty notices
•
•
•
•
•
•
Do not ignore.
Be decisive as a Board
Reach an agreement with the ATO
Consider defences
Check validity of the notice
Director’s should not hold assets where
possible.
• Consider refinance options
Refinancing
• Review current facilities and appropriateness.
• Consider security held and “excess security”
held by the financier.
• Revisit term of existing loans.
• Can principal repayment component be
reduced on existing facilities.
• Consider bringing 2nd tier lenders to the table
– exert pressure on existing financier
• Sale and leaseback of existing assets.
• Consider restructure to convert non-deductible
debt to deductible debt
Refinancing
• Always have another banker pursuing your
business.
• Review Debtor finance options to unlock
equity in working capital.
• Can succession planning be brought
forward to facilitate capital injection.
FBT changes
• Reforms to Motor Vehicle Fringe Benefits
announced in May Budget.
• Change to Statutory Formula method
FBT changes
Distance travelled during the FBT year
(1 April – 31 March)
Before 10 May 2011
From 10 May 2011
From 1 April 2012
From 1 April 2013
From 1 April 2014
0 – 15,000km
0.26
0.20
0.20
0.20
0.20
15,000 – 25,000km
0.20
0.20
0.20
0.20
0.20
25,000 – 40,000km
0.11
0.14
0.17
0.20
0.20
More than 40,000km
0.07
0.10
0.13
0.17
0.20
Source: Budget Paper No, p23; Treasurer’s Press Release: Reforms to car fringe benefits rules, 10 May 2011.