DIRECTORS DUTIES

Company directors are coming under increasing legal and financial responsibility as a result of changes to the Corporations Law and Tax Law. When a company which is not in a good financial position accrues tax liabilities and pays these to the Tax Commissioner, company directors can become personally liable for these payments. If the Company goes into Liquidation, such payments can become recoverable by the Liquidator as against the Commissioner as unfair preferences. The company directors can be sued by the Tax Commissioner for the money under a section of the Corporations Law that makes company directors liable to indemnify the Commissioner for any loss or damage. There are limits on such liabilities. The Commissioner is limited to recover from directors only payment of group tax, prescribed payments, natural resource and royalty payments, withholding tax and estimates. So, if the preferential payments to be recovered by the liquidator from the Commissioner involve sales tax, there is no right to recover this payment from the directors. Also, the Commissioner must first obtain an order from the Supreme or Federal Courts that the monies are payable by the directors. An order from the Local or District Court would not be sufficient. The Commissioner can issue a penalty notice against directors personally for failure by a company to remit certain taxes, such as group tax. The directors in such circumstances must pay the tax, come to an agreement with the Commissioner about payment, or put the company into administration or liquidation. Should directors fail to take action within 14 days of receiving this notice, the Commissioner can recover the outstanding taxes directly from the directors. If directors come to an agreement with the Tax Commissioner about paying this tax, they can still be caught by their liability under the Corporations Law to indemnify the Commissioner for the liquidator’s claim on the money. If the Commissioner is demanding tax payments but has not served a notice, one option for the directors is to pay the creditors that are needed to allow the company to carry on but not have the company pay its outstanding tax liabilities. This of course has a down side. Failure to pay group tax is an offence and the Commissioner may pursue the tax through winding up proceedings. Or the Commissioner may resort to the director’s penalty notice. The ultimate answer for directors lies in paying group and other taxes as they are collected by the company. If this is not done and there is no solution in sight, directors must make a decision about putting the company into voluntary administration. Maria Townsend mariat@gells.com.au

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