Macpherson Kelley remits director penalties and urgently winds-up company

Under the Director Penalty regime, company directors are personally liable for ensuring a company fulfils its obligations to pay its pay as you go withholding tax (PAYGW), goods and services tax (GST) and super guarantee charge (SGC) on time and in full. As our Sydney Litigation team recently experienced, the situation becomes complex when former directors are issued a Director Penalty Notice (DPN) with a non-lockdown component and short timeframes.

Former directors are issued a DPN

Two former non-executive directors of a financial services company engaged Macpherson Kelley to advise and act for them in respect of DPNs issued to both of the former directors by the Australian Taxation Office (ATO). Those penalties arose as a result of the company’s failure to pay SGC and PAYGW tax amounts. The DPNs were issued a long period of time after both of the directors had resigned, and included penalties for liabilities incurred by the company before the directors were appointed.

Non-lockdown DPNs

The DPNs also included a six-figure, non-lockdown component. As discussed in a previous article, a non-lockdown DPN is issued if a company has lodged its business activity statements, instalment activity statements and/or SGC statements within 3 months of the lodgement due date, but there are PAYGW, GST or SGC amounts outstanding. Having been issued non-lockdown DPNs, the former directors had 21 days to take steps to avoid paying by either ensuring that the company paid the debt, appointed an administrator, or through a court order to wind-up the company.

However, by the time the directors were issued with the DPNs, , the company was defunct and all directors had either resigned or had been removed from office as a result of bankruptcy. This meant there were no officers in control of the company who might be prepared to place the company in administration or make arrangements for the company to make a payment.

Urgent application to wind-up company

In order for the former directors to avoid the non-lockdown components of the DPNs, we advised the former directors to bring an urgent application to wind-up the company and ensure that the winding up commenced within the 21 days of the DPNs having been issued, so that the non-lockdown component of the DPNs would be remitted (avoided). Given that those directors no longer held offices in the company, the former directors required a court order appointing a liquidator to be made within 21 days from when the ATO issued the DPNs. It was important that proceedings were commenced on an urgent basis, that the matter was heard on a final basis, and a winding-up order was made, all within 21 days of the DPNs having been issued.

Macpherson Kelley lawyers take quick action to achieve successful outcome

Macpherson Kelley successfully made an urgent application to the Supreme Court of New South Wales to wind-up the company, establishing the following.

1. Despite that fact that the former directors were no longer directors of the company, they had standing to make the urgent application to wind-up the company.
2. The former directors should not be required to make a payment into court as security.
3. The penalty notices indicated the company could not pay its debts and should therefore be wound-up.
4. It would be just and equitable for the company to be wound-up.
5. The winding-up is an outcome recognised by the Taxation Administration Act as a proper means of addressing the director penalties, and provides a basis upon which the penalties are remitted.

The application also involved taking steps to amend the usual timeframes, including in respect of the timing between the commencement of proceedings and the hearing of the proceedings on a final basis, as well as for the publication of the relevant notices. The Court listed the matter for a final hearing on an urgent basis, noting that doing so would appropriately promote both a public and personal interest.

Reach out to our Litigation team for advice on DPNs

This matter serves as a reminder that swift action may be required to ensure a director penalty is remitted, particularly if a matter needs to be urgently heard in Court. If you or a client of yours has been issued with a director penalty notice, or you are concerned about the risk of being held personally liable for a company’s outstanding liabilities, please contact our Litigation and Dispute Resolution team.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.