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Directors may become personally liable for the debts of their company if they fail to comply with their obligations under the Pay As You Go (“PAYG“) withholding system or the Superannuation Guarantee Charge (“SGC“).

Under the Income Tax Assessment Act 1997 (Cth), companies are required to withhold money, being PAYG, from wages to meet employees’ tax liabilities to the Australian Taxation Office (“ATO“). In addition, under the Superannuation Guarantee (Administration) Act 1992 (Cth) companies are required to pay a SGC.

Should a director of a company fail to meet their obligations under PAYG withholding or SGC liability in full by the due date, they will become personally liable for a penalty equal to the unpaid amount. The ATO may then issue a Director Penalty Notice (“DPN“) to collect the unpaid amount from the director and should the amount remain outstanding twenty-one (21) days after a DPN is issued, the ATO can commence legal proceedings to recover the amount.

Director Penalty Notice Options

A DPN will be issued by the ATO and sent to the address listed with the Australian Securities and Investment Commission (“ASIC“). A DPN will list the following options available to the director in order to discharge the penalty and which must be undertaken within twenty-one (21) days of the notice being issued:

payment of the debt;
appointment of an administrator under section 436A, 436B or 436C of the Corporations Act 2001(Cth); or
having a liquidator appointed to wind up the company.

The above options are however only available to a director if the unpaid amounts were reported within three (3) months of the due date. If the unpaid amounts are not reported within three (3) months of the due date, the only option available to the director is payment of the debt.

Liability of past and present directors

Former directors will remain personally liable under a DPN for the penalty equal to the unpaid PAYG withholding and SGC liabilities in circumstances where:

these unpaid amounts where due up to the date of their resignation; and
also in respect of liabilities which fell due after the director’s resignation, but where the first withholding event in the reporting period occurred prior to the director’s resignation.

New directors can become liable under a DPN for unpaid liabilities which were due prior to their appointment. This liability will commence thirty (30) days from their date of appointment for all unpaid PAYG withholding and SGC liabilities that were due after 29 June 2012.

Therefore it is important if you are a new director of a company to make the appropriate enquiries to determine the companies compliance with its obligations under PAYG withholding and SGC liability.

If you have been served with a DPN and are unsure about your obligations, liability and available defences as a former director or new director, please contact Stone Group Lawyers today on (07) 5635 0180 to assist you in this matter.