I Own A Business - What Do I Need To Know?
I operated a business prior to filing for bankruptcy and had difficulty getting information on how my personal debts and debts of my business would be treated if I became bankrupt. I was concerned that bankruptcy would not cover my personal and business debts. The short answer is that they were both included in my bankruptcy.
As there are many structures that can be used to operate a business, this unfortunately is an area that can become messy. What is included or not included depends on the structure you use to operate your business.
Typically a business will be operated in one of the following structures;
- Sole Trader
- Company, with you as director
- Company, with you as shareholder but never been a director
- Trust, with you as Trustee and beneficiary
- Trust, with you as beneficiary only
Here is a brief summary on what happens for each of these trading structures when you file for bankruptcy.
When declaring bankruptcy you include all personal and business debts. Bankruptcy does not differentiate between your personal and business debts.
The debts of the partnership are to be paid from the partnership assets and if there are any debts from the partnership remaining, these debts will be included in your bankruptcy with your personal debts.
Company, with you as director
When you file for bankruptcy you include personal debts, debts of the company you have personally guaranteed and any PAYG tax and statutory superannuation owing by the company.
Company, with you as shareholder but never been a director
When you file for bankruptcy you include all debts in your name and debts of the company you have personally guaranteed.
The Australian Taxation Office cannot make you personally liable for the company’s unpaid PAYG tax and statutory superannuation if you have never been a director of the company.
Trust, with you as Trustee and beneficiary
As Trustee you are personally liable for unpaid debts you incurred on behalf of the Trust.
When you file for bankruptcy, you include all debts in your name and all debts of the Trust that have not been paid.
Trust, with you as beneficiary only
Depending on what is written in the Trust Deed, you are not liable for monies owing by the Trust. You will however be liable for any debts of the Trust that you personally guaranteed.
When you file for bankruptcy you include all debts in your name and debts of the Trust that you personally guaranteed.
There you go, I did say this is an area that can be a bit messy. Hopefully my summary will help you. If you have any questions please call 1300 794 492 or firstname.lastname@example.org.
Operating a business once I am bankrupt…
Now, let’s have a look at what happens regarding operating a business once you are bankrupt.
The Corporations Act prohibits you from managing or being a director of a Company while you are bankrupt.
If you are bankrupt and remain as a director of your company, you should complete and lodge form 296 with ASIC. This form you can access from Nicholls & Co here. On receiving this form, ASIC will remove you from being a director of your company. If you are the only director, ASIC will also deregister the company. There is no fee to be paid to ASIC when you lodge a form 296 and you will mail your completed form to ASIC at the address shown on the bottom of the form.
You can trade a business as a sole trader whist you are bankrupt provided you trade in your own name and do not require stock, work in progress or people owing you money to operate the business. When you become bankrupt you can keep the tools you use to earn an income up to an auction value of $3,800. If you need to have a chat about this feel free to call me on 1300 794 492 or email@example.com.
To give you a guide, examples of businesses that have been operated by bankrupt persons include lawn mowing and garden maintenance, computer repairs, clothing repairs, computer training, book keeping, home maintenance, and mobile mechanic.
Also, you should be aware, whilst bankrupt you cannot incur credit (eg; tab) or pay a cheque for more than $ 5,934.00 without disclosing your bankruptcy.
This about does it for now in regard to businesses. If you have any questions call me on 1300 794 492 or email firstname.lastname@example.org.
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