QLD What Happens to Business if Company Director Declares Personal Bankruptcy?
- Thread starter Jake2017
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The shareholders will need to appoint a new director or directors. If the sole director was also the sole shareholder, it's up to the bankruptcy trustee what to do.
HiRob,
I am in the same process. If I declare bankruptcy personally, what would happen to potential company tax debt such as CGT as i sold my business going on concern and my compauhas been deregistered
Thanks
You'd need to check with a tax accountant for specifics of your situation. A deregistered company no longer exists. The issue may be whether the capital gain is yours, and / or whether the company has been validly deregistered, or whether there has been any preferential payments made to defeat creditors.
The ATO can also have ASIC (or a Court order ASIC) to reinstate your Company in accordance with the Corporations Act 2001 s 601AH. If this happens the company will have essentially never have been deregistered and liabilities, such as a tax debt, will still need to be paid.
Also, Directors are rarely able to remain as a Director if declared bankrupt given bankruptcy causes a person to no longer be considered a ‘fit and proper person’ within the meaning of the Corporations Act.
Also, Directors are rarely able to remain as a Director if declared bankrupt given bankruptcy causes a person to no longer be considered a ‘fit and proper person’ within the meaning of the Corporations Act.
So in this case, after ATO reinstate the company and the director is bankrupt, can ato make director liable for any unpaid CGT debt or income debt company owe. ( i know directors liable for any unpaid super and PAYG)
That's a bit tricky and would largely depend on the exact circumstances, but it is possible. The situation could go one of several ways, and unless it was a significant amount, I wouldn't stress too much about it, but essentially if a business which was formerly a Pty Ltd company was sold, the profit from that sale should be reported on the ITR of the Company for the respective year. I foresee two possible situations:
1. If a person were to simply withdraw the funds from the bank account as though they were never there and not report the income on the ITR....thats an issue and would see the director in quite a lot of trouble if found out by the ATO.
2. If the profit was reported but the CGT debt wasn't paid, that is less of an issue, but essentially the debt could be brought back to the director since the ATO wouldn't just accept the excuse that 'oh, no money left, oh well...'. They would want to trace the funds and if the director was found to have just pocketed all the profit, then proceedings would likely commence against that director. Further, it wouldn't be a 'debt' per se, it would be more of a penalty. The Company has a debt, but the director would be penalised for pocketing the money and leaving the Company with the debt, bankruptcy is unlikely to affect the liability for such a debt.
If the director were to incur a debt, that means the director made a profit and therefore there may also be issues with being bankrupt and failing to declare the profit from the sale of the business, if that is the case.
There really is a myriad of ways the situation could go and in my experience the ATO isn't quick, but they rarely miss an opportunity to go hunting for money owed.
Sorry but I would like to say u may be wrong?
Because I found this article
The starting position is that a company’s tax debts are just that – a debt of the company and not a debt of the director. The Tax Act states that a director is personally liable for PAYG deductions if those deductions are not paid to the ATO, but, that liability is only enforceable if the ATO sends a Director Penalty Notice (“DPN”) to a director. So in practice there is no automatic personal liability, but rather, a director will only be liable if he or she receives a DPN.
Before the new legislation came into affect in June 2012, a DPN gave a director 21 days notice in which they could put their company in Liquidation or Voluntary Administration to avoid personal liability. The new legislation introduced a clause to say if the company has not paid or reported it’s PAYG liability within 3 months of the due date, the DPN cannot be remitted by winding the company up. They still have to send a DPN, but the only options to avoid enforcement of personal liability are to pay the debt in full, or come to a payment arrangement. They call these “Knockdown DPNs”
1) The OP did not come on here asking for a 'real world' explanation as you put it, although I would disagree that what you have described is 'real world' anyway.
2) If I told every Client who came to me 'Don't stress you won't be in trouble', well, suffice it to say I wouldn't have made it more than a year without my practice certificate being used as kindling.
I agree it is more likely than not that this matter wouldn't be pursued, however there is a real risk nonetheless.
Apologies, my answer compiled several issues into one. I cannot see the link to the article you're referring to, but I don't think it is necessary anyway as I understand your point from the rest of your post.
You're correct in that there is no automatic liability, clearly the debt lies with the Company, that is essentially Law-101 (a Company is a 'legal person'). So I am clear - The Business (Goodwill, IP etc.) was sold and payment was received by the Company. CGT is payable on the Capital Gains and this was not paid by the Company. The Company, therefore, prior to deregistration, had a liability of whatever was the CGT. A Director, specifically a Director who initiates and processes the deregistration of the Company states to ASIC upon deregistration that there are no outstanding liabilities and that the Company has less than $1000 in assets. This begs the question (1) what happened to the profit from the business sale? who paid the CGT on the sale? This is where the issues arises given a director cannot simply take those funds from the Company and go on his/her merry way. If a person was the sole shareholder of the Company, the CGT could be paid by them however this may pose issues for that shareholder if they are bankrupt. DPN's are irrelevant to this situation, they relate to PAYG and Superannuation, not CGT as far as I am aware.
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