Anti-Phoenixing Laws: Extension of Directors’ Taxation Liabilities

The long awaited “anti-phoenixing” laws have partially come into effect with the Treasury Laws Amendment (Combatting illegal Phoenixing) Act 2020 coming into force on 17 February 2020 (Act).

The Act amends the Corporations Act 2001 (Cth) (Corporations Act), A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act) and Taxation Administration Act 1953 (Cth) (Tax Act) by:

  • introducing a concept of a “Creditor-defeating disposition”;
  • introducing a regime that:
    • controls the date on which a director’s resignation is taken to be effective;
    • prevents a director from resigning from a company if that resignation would cause the company to have no remaining director;
  • extending the Australia Taxation Office (ATO) powers to allow it to:
    • recover a company’s GST liability’s from its directors personally, in certain circumstances, the company does not need to be insolvent; and
    • withhold taxation refunds due to a company where that company has outstanding taxation lodgements.

The majority of the amendments “created” by the Act are to the Corporations Act 2001. Those amendments center largely on the newly introduced voidable transaction known as a “Creditor-defeating disposition” (CDD) under section 588FDB of the Corporations Act.

Please see our article written on 18 February 2020 for more information on this topic.

The Act also controls director’s dates of resignation by amending the Corporations Act to prevent directors from back-dating their resignations for the purpose of avoiding personal liability associated with insolvent companies. This is due to the regime that “fixes” the date of a director’s resignation, regardless of any resolutions a director passes about the date of their resignation, based on the date that ASIC received notification of that resignation.

Extension of Australian Taxation Office Powers

The extension of the ATO’s powers are made by amendments under the Act of the Tax Act. Those changes will come into effect on 1 April 2020.

The amendments extend the ATO’s power to recover money owed by a company from a director personally. Currently those laws are limited by only allowing the ATO to recover unpaid PAYG and superannuation from directors personally and can be found in division 268 of the Tax Act.

The Act adds reference to GST, wine equalisation tax and luxury car tax to division 268 of the Tax Act.

The amendments to the Tax Act, while not as widely publicised, will have as far reaching consequences as the introduction of CDDs.

The amendments to the Tax Act coupled with the amendments to the Corporations Act relating to resignation date of directors, will have significant impacts on the potential personal liabilities of directors of companies in financial distress and companies that are ultimately placed into administration and/or liquidation.

It is vitally important for directors to receive legal advice about the current and prospective amendments introduced by the Act from appropriately informed lawyers.

If you are concerned about the continued financial viability of a company that you are a director of, contact us on (08) 9321 3755.

The information published in this paper is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.