In some cases, directors feel that once their company begins to become insolvent they personally can become liable for their company’s debt. This is however not entirely true, for most cases there are ways in which a director is able to separate their company’s debt from themselves and avoid servicing them from their own pocket.
As a director, if you meet and abide by all your legal obligations and duties, you are separated from the entity and the company becomes the one responsible to service its debts. However, there are some cases where as a director you may become liable for your company’s debt if you:
- Fail to act in good faith of your company and stakeholders
- Fail to act in the best interests of the company and stakeholders
- Fail to lodge your Business Activity Statements on time with the ATO
- Continue to allow the company to trade even though it’s insolvent
Additionally, directors also have the responsibility to ensure that all Pay As You Go and Super Guarantee Charge obligations have been lodged on time with the ATO. If the company fails to lodge its Business Activity Statements on time with the ATO, directors become personally liable for the PAYG and superannuation and the ATO may issue a Director Penalty Notice to recover these amounts.
It is important to ensure that you know your debt obligations if you believe your business is becoming insolvent or to seek advice if you have received a Director Penalty Notice. Our friendly and professional insolvency specialists can help you do that. We offer a FREE initial consultation and expert advice. Please contact us on 1800 210 073 now to learn more about your options.