Brief example of advice given on the Insolvency advice line

Recently the 24 hour insolvency advice line provided assistance to a young lady who lost her restaurant business.

Earlier, we were contacted by the young lady’s mother who was concerned her daughter was suicidal at the prospect of liquidation and bankruptcy.

Briefly, the restaurant business was operated through a PTY LTD company. There were 3 directors and shareholders.

The business was not performing well and as a result, in November 2008, the business was sold to a third party and the funds received were used to pay all external creditors excluding the tax department.

Subsequently, the tax department issued a director penalty notice to the directors which they did not act upon within the 14 days allowed by the notice.

As a consequence of the non compliance with the notice, the directors became personally liable for the debt of $40,000 as per the director penalty notice.

The directors paid this money to the ATO, but it was apparent that the company had a further issue with the tax department as it had not lodged BAS returns or paid other PAYG obligations for well over 12 months. In this way, the director explained that the ATO were perusing her and the other directors on a daily basis for the payment of $90,000. This was causing great stress to all the directors.

The director believed that the ATO could bankrupt her for the additional debt of the company and that this would impact her and her spouses other business and result in the loss of a piece of land the couple owned together.

The advice provided to this young lady on the insolvency advice line was that the company was no longer trading and therefore the immediate problem of insolvent trading was not an issue.

She was also advised that the sale of business and use of funds to pay creditors including the tax department could cause problems such as the recovery of preferential payments.

Most importantly however, she understood the ATO could issue a further Director Penalty Notice that could see her become personally liable for the tax debt of the company.

Ultimately, the director understood the company was a seperate legal entity to her and that by placing the company into liquidation – it would not automatically cause her bankruptcy.

By helping the director to understanding her assets are entirely seperate to the PTY LTD company (except in circumstances where the corporate veil can be lifted), the director had a change in attitude.

She is no longer suicidal and understand that liquidation in her case will be of benefit to her and the directors of the company.