Director Personal Liability - Company Debt

Director Personal Liability - Company Debt

ATO Debt:

Company directors can in certain circumstances become liable for debts owing by their company. If the company itself is unable to pay the ATO debt then the director can become liable for the unpaid employee super, group tax, and/or GST. The ATO does this by issuing Director Penalty Notices (DPN).

Unpaid Employee Entitlements:

If an employer is placed into liquidation or becomes bankrupt, the Federal Government underwrites employee entitlements. This is commonly referred to as making a FEG claim (Fair Entitlements Guarantee). A former employee may be able to claim:

  • Unpaid wages for up to 13 weeks,
  • Unpaid annual leave and long service leave,
  • Up to 5 weeks payment in lieu of notice,
  • Up to 4 weeks per year of service redundancy pay

Unfortunately, FEG does not cover unpaid Superannuation Guarantee Contributions. The ATO can issue a DPN to the director for this debt. If this happens and the director is unable to pay, bankruptcy can extinguish the debt.

Debts Personally Guaranteed by Company Directors:

It is common for company directors to provide personal guarantees to set up supplier accounts to enable the company to trade. A difficulty with personal guarantees is that very often directors do not keep a record of to whom they have provided personal guarantees and personal guarantee creditors do not always surface quickly after a company has been placed into liquidation.

Avoid Delays:

When a company goes into liquidation the director needs to be able to recover and get on with life as quickly as possible. This can be a problem if company creditors are slow to pursue their personal guarantees. In fact, some wait for the director to recover and get going again before pursuing the director.

If you are unable to pay your debts and become bankrupt, your bankruptcy will capture all personally guaranteed company debts that have surfaced and may surface in the future. You do not need to wait till all personal guarantees have surfaced before filing for bankruptcy. This stops you from waiting around and allows you to push on and speed up your recovery.

Questions:

If you have questions on personal guarantees and bankruptcy, call Slade on 1300 794 492 or email hello@understandingbankruptcy.com.au

Insolvent Trading Claim by Liquidator:

When a company is insolvent and placed into liquidation, it is common for the company director to receive an insolvent trading claim from the liquidator. Under the Corporations Act, a company director can be made personally liable for unpaid debts of the company which were incurred without reason to believe that the company would be able to repay the debt. From when a company is placed into liquidation, it can take years before an insolvent trading claim surfaces.

If a company director is unable to pay his or her debts, the director can file for bankruptcy subsequent to the company being placed into liquidation and any insolvent trading claim that may surface in the future will be caught by the director’s bankruptcy.

If a company director is unable to pay his or her debts, the director can file for bankruptcy subsequent to the company being placed into liquidation and any insolvent trading claim that may surface in the future will be caught by the director’s bankruptcy.

Questions:

If you have questions on a liquidator’s insolvent trading claim and bankruptcy, call Slade on 1300 794 492 or email hello@understandingbankruptcy.com.au