On 18th February the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 came into force. With it came new criminal offences and civil penalties around the disposal of company property, expansion of the Director Penalty regime to include Goods and Services Tax, Luxury Car Tax and Wine Equalisation Tax, and, from February 2021, changes to director resignations to prevent backdating of resignations and companies being left without a director.
New creditor-defeating dispositions offences and civil penalties
A creditor-defeating disposition is a voidable transaction. It is made if property of the company is disposed of for:
- less than the property’s market value
- less than a reasonable amount that could be achieved given the circumstances of the company at the time the agreement for disposition is made
And, the disposal of the property prevents or significantly delays the property being available for the benefit of creditors in the event of a winding-up.
Further, the disposition is made when the company is insolvent, becomes insolvent because of the transaction or goes into external administration in under 12 months of the transaction (or an act giving effect to it).
In addition to these timings, a fourth condition is available in the determination of an offence, and that is where a company stops carrying on business within 12 months of the disposition. This will avoid some of the difficulty that previously existed in establishing the point of onset of insolvency in abandoned companies.
Offences and penalties
The offences and penalties apply to company officers for failing to prevent creditor-defeating dispositions and are extended to persons (natural and legal) for procuring, inciting, inducing or encouraging creditor-defeating dispositions. They include 10 years’ imprisonment for a criminal offence and 60 penalty points for a civil offence.
These conditions do not apply to dispositions made by order of the Court, under a Deed of Company Arrangement, by an administrator, liquidator or provisional liquidator.
A company’s situation will be considered when determining if a transaction is a creditor-defeating disposition. For example, it is understood that companies sometimes liquidate assets to stay afloat during downturns and this can put them in a weak bargaining position to get the best possible price for the assets.
However, if records about a disposition are inadequate or unavailable, then the disposition will be assumed to be not for market value.
Goods and Services Tax, Luxury Car Tax and Wine Equalisation Tax are now included in the Director Penalty regime from 1st April 2020
The Directors Penalty Notice regime now includes the Goods and Services Tax (GST), Wine Equalisation Tax and Luxury Car Tax.
Important here are the lock-down provisions and new powers of the Commissioner to collect GST estimates and keep tax returns.
GST, WET, LCT penalty lockdowns
GST liabilities must be paid on their due date, or the company must go into voluntary administration or liquidation. Otherwise directors becomes liable for the amount and will be issued a DPN. This DPN can be remitted by any of the following within 21 days of the date of the DPN:
- paying the liability
- entering voluntary administration
The liability is locked down if the GST return is not lodged, or a voluntary administrator or liquidator is not appointed, within three months of the due date. A locked-down penalty cannot be remitted. A director remains personally liable for the amount even if the company goes into administration or liquidation.
GST Estimates and Retention of Returns
The Commissioner can now make estimates of GST, Wine Equalisation Tax and Luxury Car Tax.
And, companies will no longer be able to keep multiple GST ‘balls in the air’ to provide cash flow by claiming refunds before lodging returns.
The Commissioner has been granted powers to retain tax refunds where a return has not been lodged or the taxpayer hasn’t responded to other requests for information.
From 18th February 2021 there are changes to director resignations
Directors will first and foremost be unable to resign or be removed if it means that the company will be left without a director.
Directors must now notify ASIC within 28 days of the date of resignation for the date to be recognised. Otherwise ASIC will take the date of resignation from the date it receives notification.
Backdating of director resignations can only occur by application by either the director or company to ASIC (if within 56 days of the purported date of resignation) or to the Court (if within 12 months or later if allowed by the Court).
The new legislation means that MSME directors need to broaden their focus and stay on top of GST payments, record keeping around property disposal and, come 2021, communicating promptly with ASIC about resignations.
And all at a time when we are sure they are focusing on business survival.
Please don’t hesitate to call us here at Shaw Gidley to discuss the best way forward for your clients in these unprecedented times.