Wisdom Business
Consultants FAQ

If you suspect that your company may be insolvent, you should seek advice immediately. We can discuss your company’s circumstances with you and give you further information to determine whether your company is actually insolvent.

A director penalty notice (DPN) is a notice the ATO can issue to directors of company to make them personally liable for two types of company tax debts, being:

1. Pay-As-You-Go Withholding tax (PAYG)
2. Superannuation Guarantee Charge (SGC)

There are two types of DPN:

1. The first type of DPN gives directors 21 days to appoint a Liquidator or Administrator to their company to avoid personal liability.
2. The second type, often referred to as a “lockdown DPN” makes the directors immediately liable for the company’s outstanding PAYG and/or SGC.

An individual facing personal insolvency can enter bankruptcy in either of two ways:

1. Voluntarily, by executing a debtor’s petition; or
2. Involuntarily, by being forced into bankruptcy by a creditor, pursuant to a sequestration order made by the Court.

We have seen many instances where Directors endeavour to restructure the assets of a company at a time when it is or likely to be insolvent. Such efforts typically are capable of being unwound or clawed back by a Liquidator in circumstances where there has been a detriment caused to creditors. As such they are usually unsuccessful. It is more prudent when there is a realisation that the company may be in some form of financial crisis that professional advice is sought. The law in this area is ever evolving and there have recently been several cases initiated against advisors and Directors who seek to restructure the affairs of an insolvent company.

Under the Corporations Act, a creditor of a company whose debt exceeds $2,000 may serve upon the company a notice under Section 459E requiring the company to pay, or make satisfactory arrangements for payment of the debt within 21 days of service of the notice.

A formal insolvency procedure in which a company is ended, all its assets are liquidated and the proceeds from the sale of assets are used to repay creditors.

Yes, your credit file is flagged. You may still be able to obtain finance, but it is of course dependent on your financial position.

Have you been required to give guarantees in relation to the conduct of the company? They can typically be required where leases and trade accounts are involved.

It is important to recognise that should a company encounter financial difficulty, then ultimately these guarantees could be called upon which can expose you personally to pay the debts incurred by the company. We regularly assist Directors in understanding the likely ramifications should this occur. We also take a proactive role in working with Directors to achieve practical solutions when considering and giving guarantees. In addition, we also work closely with other professionals to develop sound strategies regarding structuring a company and Director’s affairs from inception.

There are obviously other areas of consideration for Directors. Whilst we believe that careful consideration should be given to being appointed a Director, we also recognise that certain events can occur during a company’s life cycle which sometimes are outside of the Director’s control. We seek to provide Directors with the practical advice and solutions required in an ever changing and dynamic regulatory environment.