Note: At the time of writing, these laws may be affected by legislative changes imposed as a result of COVID-19.
On 5 February 2020, the Senate passed the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (‘Act’), which confers personal liability on directors for their company’s unpaid GST liabilities. The Act, which received Royal Assent on 17 February 2020, has been criticised in some quarters for unjustifiably piercing the ‘corporate veil’ that exists to protect directors from company debts.
Purpose of the Act
The extension to director liabilities is part of the Government’s broader aim of addressing ‘illegal phoenixing activity’ under the A New Tax System (Goods and Services Tax) Act 1999 and the Tax Administration Act 1953. ASIC defines illegal phoenixing activities as when directors transfer a company’s assets to another company and then deliberately liquidate the former company ‘to avoid paying outstanding debts including taxes, creditors and employee entitlements’. Figures show that almost $24 billion was owed to the ATO in outstanding tax debts in the 2017-2018 financial year, and this Act is part of a broader scheme to recover more of these debts.
The Act begins on 1 April 2020. The way the new process works under the Act is:
(1) the company pays the GST debts;
(2) the company is placed into liquidation; or
(3) the company is placed into voluntary administration.
Director Penalty Notices: Defences
If a director receives a Director Penalty Notice, it is advisable to contact a lawyer immediately. There may be defences available to avoid personal liability, which include:
In light of the potential consequences for directors arising from the Act, we recommend the following strategies:
The new Act is clearly reflective of a broader measure to reform Australia’s corporate insolvency regime, including illegal ‘phoenixing’ activities that lock billions of tax revenue annually. Directors of SMEs – especially start-ups – should take careful note to be aware of these new measures.
If you have any inquiries regarding directors’ new obligation to pay the company’s GST liabilities, feel free to contact us below.
 Sections 436A, 436B or 436C of the Corporations Act 2001 (Cth).
 This also includes Luxury Car Tax and Wine Equalisation Tax.