Australian Securities and Investments Commission (“ASIC”) has released the following summary and observations after a review of statutory reports lodged by liquidators, receivers and voluntary administrators for the year ending 30 June 2016.
• 10,078 external administrator reports were lodged, with NSW accounting for 38.2%.
• Of those, 79% related to companies with less than 20 employees.
• The industries with the highest levels of representation were business and personal services (31%) and construction (21%).
• 86% of the failed companies were assessed at having estimated assets of $100,000 or less with 61.2% had estimated assets of $10,000 or less.
• The top three claimed causes of failure comprised inadequate cash flow (46%), poor strategic management (46%) and poor financial control (34%).
• Possible causes of misconduct leading to insolvency included insolvent trading (61%), obligation to keep financial records (42%), and failure of directors to act with care and diligence (38%).
• Most categories of potential misconduct related to
alleged breaches of civil obligations (81.1%).
• The dividends estimate to unsecured creditors in
97% of cases was less than 11 cents in the dollar.
Two taskforces targeting phoenix businesses and the misuse of trust structures led by the ATO have been newly prescribed, enabling the ATO to share tax-related intelligence and data with other agencies.
The Trust Taskforce comprises the ATO, Australian Federal Police, Australian Crime Commission, Commonwealth Director of Public Prosecutions, Australian Securities and Investments Commission, Australian Government Solicitor, Attorney-General’s Department, AUSTRAC, Australian Competition and Consumer Commission, Australian Business Register and the Australian Prudential Regulation Authority.
The Phoenix Taskforce is made up of these entities as well as the Fair Work Ombudsman, Fair Work Building and Construction, the Department of Environment, the Department of Employment, the Department of Immigration and Border Protection and the New South Wales and Victorian Offices of State Revenue. It is estimated that phoenix activity costs honest businesses $2 billion in unpaid debts and employees of these phoenix businesses are losing up to $655 million in unpaid wages and entitlements.
Source: ATO media release – ATO leads taskforces on serious financial crime, 6 March 2015.
In June last year, the government announced significant changes to the Director Penalty Regime.
At that time, the ATO’s powers were expanded to enable pursuit of PAYG and Superannuation Guarantee debts from directors personally in circumstances where such debts remained unpaid and unreported for more than three months past the due date for lodgement.
Until now, we have seen the ATO send warning letters for unpaid PAYG only. But from now on it will be issuing warning letters in respect of Superannuation Guarantee debts.
Most directors understand they may avoid personal liability for a company PAYG tax debt by ensuring their BAS returns are lodged within three months of the due date (whether or not the debt can be paid). However, they are generally unaware that if a company cannot meet its superannuation obligations then it is required to submit Superannuation Guarantee Charge Statementand if this occurs more than three months late, the directors can be held personally liable for the unpaid superannuation sum.
So what if you receive a Super Warning letter?
In general, we would suggest:
- If there is a debt – Pay it! If the company is able, pay the debt in order to avoid personal liability (there are traps here so feel free to call to discuss with us.)
- If the company is unable to pay, it must always lodge its BAS and Superannuation Guarantee Charge Statements within three months of the correct lodgment/payment date. By doing so, a director will receive the 21-day grace period to avoid personal liability for a company tax debt if ever a Director Penalty Notice is received (so long as it is acted upon within 21 days of the date on the notice).
- If a company fails to lodge BAS and Superannuation Guarantee Charge Statements within three months of the due date, a director who receives a Director Penalty Notice cannot avoid personal liability for a company tax debt by placing their company into liquidation.
- If returns are currently outstanding for more than three months and the company is unable to pay, call Thomson Hall to discuss.