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When is director liable for the debts owed by the company?

May 11, 2017

 

A corporation is also referred to as a limited company. Normally, the business owner's liability is limited to their capital invested in the company. This feature largely protected the business owners by reducing their exposure to the business liabilities. But is this always the case? Is your family assets safe when the company becomes insolvent?
The answer is "No." People in business should always be aware that under certain circumstances, they may become personally liable for the company debts. 
One of the common scenarios is when director signed the personal guarantee for the company to repay the debt. If the company latterly default the financial agreement, then the creditor gain the right to chase the remaining balance from the guarantor. This happens where the company has the trading credit account, business loan or equipment financing. 
Another threat is director penalty regime. Under the director penalty regime, the directors become personally liable for the unpaid superannuation and unpaid PAYG withholding that company fails to disclose within three months of its due date. 
Even when these liabilities are reported at a time, ATO can still make the director personally liable for the unpaid tax debt by serving the director penalty notice. Directors should be aware that they still have a few options to release them from personal liability upon receiving DPN. The best practice is to consult a tax debt specialist for the director penalty notice solution.  During recent years, using of director penalty notice has become a common practice for ATO to make the director personally liable for the unpaid superannuation and PAYG withholding. Unfortunately, a lot of the business owners are not aware of this hidden obligation and end up in risking their family assets. 
Directors should regularly review their company obligations to avoid becoming personally liable for the company debts. If you need further assist on how to reduce your risk exposure to the company debts and how to protect your family asset, please feel free to contact us for a free consultation.

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