April has brought a shorter reporting period for Superannuation Guarantee Charges (SGC) before director penalties become ‘locked down’, and Director Identification Numbers are on the backburner yet again.
Director liability for SGC locked down sooner.
As of April 1, Superannuation Guarantee Charge obligations must be reported within one month and 28 days from the end of the quarter to avoid directors becoming personally liable for the unpaid amount (or an estimate)[i], courtesy of commencement of the Treasury Laws Amendment (2018 Measures No. 4) Act 2019 (Cth)[ii].
The additional 3 months grace that applied to SGC prior to April 1 is no longer available.
Under the new Act, if the SGC is reported by the due date, the penalty can be remitted by:
- Payment of the debt
- Appointment of an administrator
- Commencement of winding up of the company.
If the SGC is not reported by the due date, only payment of the unreported amount will remit the penalty.
Once a director penalty notice (DPN) is issued, a director has 21 days (or more at the discretion of the Commissioner) to cause the amount to be paid before becoming personally liable for the outstanding amount or related penalties. If directors do not comply with the DPN they can incur penalties of 50 penalty unit points (currently $10,500) in fines, 12 months’ prison time, or both[iii].
The intent of the legislation is to check employers who used the previously available 4 months and 28 days between due date and ‘lock down’ date to liquidate companies and avoid directors’ personal liability. Compliance history, size of debt, size and nature of the company and what steps were taken to discharge or dispute the liability or pay the amount[iv] must be considered before the Commissioner issues a notice.
Director Identification Numbers on backburner.
The Bill introducing Director Identification Numbers (DIN), the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019 (Cth), has lapsed because of the dissolution of parliament.
It is up to the next government if the Bill will be tabled before the new parliament, tabled in the same form or, as experts[v] and Labor Senators[vi] have recommended, with the DIN provisions uncoupled from the Bill. It has been argued that registries modernisation will be a long process. The approval needed for large capital outlay to replace ASIC’s 30-year-old IT infrastructure will delay the passage of the Bill through parliament, possibly for years. In the meantime, the current lax i.d. requirements and director appointment processes will allow illegal phoenixing to continue[vii].
Intent of the legislation is that DIN will flag directors with repeated histories of failed companies (possible illegal phoenixers) to regulators. It will also make tracking down company directors easier for insolvency specialists. No complaints here.
If the DIN regime is passed in its present form, current directors and new directors appointed within the first 12 months of the new law’s operation will have a transitional period (not yet specified) to apply for a DIN. Once the transitional period is over, new directors must apply for a DIN before being appointed as a director[viii].
Director i.d. validation will be more stringent, and there are offences for failing to apply, applying for more than one DIN, misrepresenting a DIN, or conspiring with others to do any of the former. Civil penalties up to $200,000 may apply, and criminal penalties include 100 penalty units, 12 months’ imprisonment, or both. The registrar will have the option to issue infringement notices where full civil or criminal penalties would be excessive, for example where the infringement is a late application.
Both the SGC reporting changes and director identification numbers highlight that being a company director in Australia is a responsibility to be applied diligently. But even the most diligent business owner can experience insolvency. Timely advice from Shaw Gidley’s experienced insolvency specialists could be the difference between penalty or payment plan. Please don’t hesitate to call James, Paul or Jeff for your clients’ insolvency needs.
[i] Explanatory Memorandum, Treasury Laws Amendment (2018 Measures No. 4) Bill 2018 (Cth), 81, [5.45].
[ii] Treasury Laws Amendment (2018 Measures No. 4) Act 2019. https://www.legislation.gov.au/Details/C2019A00008
[iii] Ibid 265-95(1).
[iv] Ibid 265-90(2).
[v] Anderson, H. Prof. (5 October 2018). Modernising business registers and director identification number draft legislation. Retrieved 11/4/19 https://treasury.gov.au/sites/default/files/2019-03/Professor-Helen-Anderson-Melbourne-Law-School.pdf
[vi] Economics Legislation Committee (March 2019) Commonwealth Registers Bill 2019 [Provisions] and four related bills, 39, [1.2]. Retrieved 19/4/19 https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/CthRegistersBill2019/Report
[viii] Explanatory Memorandum,
Commonwealth Registers Bill 2019, Treasury Laws Amendment (Registries Modernisation And Other Measures) Bill 2019, Business Names Registration (Fees) Amendment (Registries Modernisation) Bill 2019, Corporations (Fees) Amendment (Registries Modernisation) Bill 2019, National Consumer Credit Protection (Fees) Amendment (Registries Modernisation) Bill 2019 (Cth), 61, [2.80, 2.81].