The long-anticipated Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (ACT) is now the law of the nation. Specifically, the legislation amends theCorporations Act 2001; A New Tax System (Goods and Services Tax) Act 1999; andTaxation Administration Act 1953. The Act imposes a number of new criminal offences and civil penalties upon directors and officers and professional advisors who engage in illegal phoenix activity in order to avoid tax and other liabilities.
What is “Phoenixing?" It is used generally to describe the stripping and transfer of assets from a distressed company to another entity with the intention of defeating the interests of the distressed company’s creditors in those assets.
Amongst a raft of new laws that have come into effect, the legislation is intended to prevent Phoenixing and other anti-black economy measures including the introduction of Director Penalty Notices (DPNs). Directors will have personal obligation to ensure that the companies they run either pay their GST debts, Pay As You Go (PAYG) tax, Superannuation Guarantee Charges (SGC) or are placed into liquidation. If this does not occur then the ATO can issue Director Penalty Notice (DPNs) to make the directors personally liable for the GST, SGC or the PAYG of the company. Directors should be aware that it is not an acceptable defence to have relied on others for advice, for example, accountants, lawyers and other directors. You must actively stay informed of the company’s activities, especially its PAYG and SGC obligations.
NOTE: even new directors can be made liable for historic GST, SGC or PAYG where these remain unpaid 30 days after their appointment. As a result, new directors should be careful when being appointed as director to ensure they are not inheriting personal liabilities. This will be relevant in share sale agreement and purchase agreement transactions and will require extra checks and enquires and specific indemnities and releases to ensure there are no outstanding GST, SGC or PAYG liabilities and/or DNPs issued against the directors. You must get legal advice from a specialsed lawyer that can ensure you are protected. At Manookian Solicitors we have the experience and expertise to ensure your commercial interests are protected in any such transaction and provide the assistance to you if you have been issued with a DPN by the ATO.
Contact Rostom Manookian on 0416 716 960 or email rostom@manookiansolicitors.com to discuss the effect of these new laws and how we can assist you with your acquisition or sale or respond to a Director Penalty Notice.
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