Insolvency experts slam draft laws on phoenix schemes that could catch out directors

Insolvency experts have reacted negatively to a new draft law released by the Government that would make company directors personally liable if they fail to pay superannuation and other debts, in an attempt to crack down on so-called “phoenix” companies.

These experts say the laws are too broad and would affect all businesses, not just those which are accused of managing a phoenix operation – even though the Government has made a number of revisions to the laws.

“This has nothing to do with phoenix companies,” says Dissolve chief executive Cliff Sanderson. “This applies to all companies and all company directors.”

The legislation was originally introduced last year, but then retracted as industry reacted badly to the changes. The laws would make directors of phoenix companies personally liable for any tax debts.

The new changes state the Australian Taxation Office will need to wait 21 days after serving a penalty notice before it can start recovery action. Before this draft, it could do so without any notice.

This new draft also extends the point at which a director becomes liable for superannuation debts from 14 to 30 days.

In a statement, assistant treasurer David Bradbury said the changes “make it clear that directors have an obligation to ensure that provision is made for the ongoing payment of workers’ superannuation”.

“The draft legislation also includes a new defence for directors liable to penalties for superannuation debts where, broadly, they reasonably thought the worker was a contractor and not an employee,” he said.

Sanderson says while the goal of cracking down on phoenix companies is a positive one, this legislation is too broad in that it affects all companies, not just those suspected of operating a phoenix scheme.

“The proposed law was retracted last year, largely because of lobbying from industry. But here, these laws look much tougher.”

“If a company doesn’t pay PAYG and super guarantee liabilities within three months of their due date, a director is liable for that debt.”

Sanderson says the legislation appears to be even more complicated than the previous version, and says that before the Government starts cracking down on phoenix companies, they actually need to define what one is.

“This looks much more complicated, and much tougher, than last time.”

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