Corporate debt comes with a range of high risk factors that can be major problems for directors. Things like a director penalty notice have their own issues. These notices turn a corporate debt into a personal debt. Garnishee notices can be risks because they involve the tax office taking money out of the company, and have the potential to create corporate insolvency situations.
Corporate debt issues- When debt becomes a risk management scenario
The real issues with corporate debt is actually outside the framework of simply being ‘debt.’ There are a range of obligations upon the directors of Australian incorporated companies, including:
Financial management- All company directors are deemed responsible for financial management of a company. The statutory ramifications of this responsibility develop depending on the debt situation.
Company solvency- By law, an Australian company may not trade while insolvent. Technically, a company is insolvent if it is unable to meet its financial obligations as and when they fall due. This particular issue is highly relevant to tax debts, as well as normal creditor debts. A company may be technically insolvent based on a tax assessment which was miscalculated, for example. In some cases, businesses may also have debts that require debt recovery including the use of debt recovery services.
Garnishee notices- Garnishee notices are issued on the basis that the tax office claims money held by the company. The ATO has the statutory power to do this, and to literally take money out of company accounts. The possible effects of garnishee notices are potentially lethal, if the tax office takes more cash than the company can afford and pushes it into insolvency.
Director penalty notices- The directors of a company may be held personally liable for tax owing by the company.
So the bottom line is:
Any company debt which renders the company insolvent may also prohibit the company from trading.
Directors may be responsible not only for breaches of corporate law related to trading while technically insolvent, but also for company tax debts.
The above situations are pretty grim, and they need managing. The good news for company directors is that there’s expert help on tap if you’re in a situation like this.
This help comes from three main sources:
The Australian Tax Office- The ATO will provide all the assistance it can to explain the options available for companies and directors, and has appeals processes that can mitigate any negative effects of tax assessments. The ATO will make every effort to ensure that company’s viability isn’t unnecessarily compromised by tax payments, etc.
Tax accountants- Whatever the issues, you should be aware that any financial situation involving corporate debt also involves tax. You’re strongly advised to obtain the services of a company which can carry out both financial inspections and tax assessments. These expert accountants can also help you with ATO procedures, appeals and getting records in order to support your claims for both tax debts and other issues. They can also help with small business accounting work to organize your records and get your materials in order for appeals.
Insolvency practitioners- If there’s even a suspicion of insolvency, you must have your company checked out by insolvency experts. They can tell you how to manage both the risk of insolvency and how to manage actual insolvency, if required.
All these services are available with a phone call. If you’re worrying, stop worrying and start calling. You’ll get the help and the answers you need.
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