COVID-19: Guidance for Corporate Officers

Business Law: 26 March 2020

People are often advised by their accountants that they should structure themselves by starting a company for one main reason: limited liability of directors, shadow directors (people who may not be registered as a director but for all intents and purposes are the guiding minds of the company) and other corporate officer holders (Corporate Officers). However, this ignores the many ways in which Corporate Officers can become personally liable for a company's debts.

In recent times, there has been significant media attention on aspects of personal liability of this group in the areas of:

• anti-phoenix reforms;
• personal liability for unpaid GST, PAYG, Payroll Tax and Superannuation; and
• trading while insolvent.

In the wake of COVID-19, legislation has been enacted including protection for Corporate Officers who trade whilst insolvent. However Corporate Officers beware. This change only provides limited protection for insolvent trading. It does not provide a shield in relation to the other exposures.

But I thought being protected from insolvent trading meant I would not be personally liable for company debts?

There are several company debts which you may become liable for. These include:

1. unpaid PAYG and superannuation, and GST from 1 April 2020, if the Australian Taxation Office serves you with a Director Penalty Notice. There is (currently) no indication that the government (or the ATO) will relax the ability of the Commissioner to do this;
2. liabilities incurred by the company which you may have personally guaranteed; and
3. debts which might be incurred after the six-month period where the protection is in place expires if the company remains insolvent and continues to incur debts. It is highly likely that businesses will be working towards digging themselves out of debt for some time to come and the measures introduced will not protect Corporate Officers once they expire.

What should I be doing?

Corporate Officers should not ignore their obligations to monitor and consider financial performance.

Protections known as safe harbours were introduced some time ago to protect Corporate Officers from insolvent trading claims where liabilities are incurred at a time where the company is or might become insolvent as a result, but has developed or is developing one or more courses of action that are reasonably likely to lead to a better outcome for company and its creditors.

Our view is that Corporate Officers ought to be proactive and notwithstanding the temporary protection, actively engage with the safe harbour protections. This will enable them, at the conclusion of the temporary relief, to continue develop and implement plans and minimise the risks which will continue to impact them even when the COVID-19 pandemic is over.

What do I do?

Corporate Officers should carefully look at, consider and analyse the financial performance of the company, and document their actions. They need to:

1. Stay on top of taxation obligations - even if this is simply lodging returns. The ATO has indicated it will work with businesses in relation to payment; but this does not extend to permitting businesses in defaulting on complying with their lodgement obligations or removing the prospect of issuing a Directors Penalty Notice. You may also not receive certain refunds and payments which are being offered by the government if your lodgements are not up to date.
2. Look at the assistance being made available by the government which includes:
   1. working with the ATO on payment arrangements, reductions and deferrals;
   2. considering instant asset write-offs which have been increased;
   3. considering accelerated depreciation deduction arrangements; and
   4. supplements and other benefits being offered.
3. Get advice from us. Every business is different. Rely on us, your professionals, to look at your circumstances. Should you change your lodgement cycles with the ATO? Should you restructure parts of your business? Should you access the Safe Habour provision? Should you place your company into Administration? Can you enter into a Deed of Company Arrangement (DOCA)?

Aitken Partners will guide you through these troubled times with the aim of protecting your wealth. The corporate shield has been torn down and the despite the recent Government legislation, Corporate Officers personal wealth remains at risk in this very trouble time.

Further support is likely to become available and changing rapidly. Engage with us to ensure that you maximise your chance of making it through this pandemic with your personal wealth intact. Don't go it alone.

More information and assistance

Aitken Partners is committed to assisting you during this period We will remain accessible throughout the pandemic. If you need legal help please contact the following:

• Michael O'Brien -03 8600 6018
• Paolo Tatti - 03 8600 6026
• Lucy Sheehan -03 8600 6055
• Jonathon Lean - 03 8600 6038