What is wrong with allowing the deregistration of your defunct company...?
So we all know the Covid period has been tough and your Company and small business may have suffered. You’ve accrued some tax debts and maybe a few other minor suppliers are still outstanding. Perhaps the business has now shut or ceased, so what do you do to clean up the residual mess…?
Possible options, might be - try to pay it all back somehow, maybe out of your own pocket by refinancing the mortgage on the family home, or possibly look to appoint a Liquidator and fork out for the liquidator’s fees and worry about the black mark against your name, or, as seems to have become very common recently, try a voluntary deregistration at ASIC (for a fee of just $42) or alternatively simply stop paying your ASIC Annual Review fees and wait for ASIC to deregister it for you, at no cost!
Deregistration (voluntary or involuntary) sounds like a great idea!! Or does it…?
Well it seems that many directors may have gone through this thought process in recent times and anecdotally at least, it seems the numbers of deregistrations (both voluntary by Directors, or involuntary by ASIC) has boomed in the last 12-18 months.
Well, what could possibly go wrong…?
Unsurprisingly, there are a few serious shortcomings with the approach of allowing deregistration and just hoping it all goes away…
Lets break it down:
- A deregistered Company can be re-registered, on the application of various parties, including a creditor, the ATO, or ASIC. It can be a bit costly and fiddly, but it is certainly very doable.
- If the deregistration is a voluntary one (i.e by a director lodging a Form 6010) you must declare the following:
- All members of the company agree to the deregistration; and
- the company is not carrying on business; and
- the company's assets are worth less than $1000; and
- the company has paid all fees and penalties payable; and
- the company has no outstanding liabilities; and
- the company is not a party to any legal proceedings.
It is an offence to swear the declaration if it is not true, and prosecution could result if it is found to be falsely sworn, with a maximum penalty of up to 5 years imprisonment! And take note - semi-regular ASIC prosecutions are currently occurring! Usually for breaches of ‘e’ or ‘f’ – i.e. there are liabilities owing or a legal action (often debt collection) underway. See these ASIC links, for example…
3. And, potentially of the greatest concern…
What about if Directors receive a DPN from the ATO in respect of the deregistered company’s tax debts? – You may have lost any ability to do anything about it!
Just to remind you - a “DPN” is a Director Penalty Notice – a power the ATO has to make a Director personally liable for a company’s tax debts. This covers company tax debts including PAYG, GST and a range of other minor taxes, as well as outstanding Superannuation. If the ATO chooses to issue a DPN – this is issued to the Director personally, and will be sent to the Director’s home address (per ASIC records). Note there are 2 different sorts of DPNs (lockdown or non-lockdown), and there are relatively few ways to avoid the personal liability that follows outside of paying the debt, but, several of the potential options (such as putting the company into Liquidation or Administration within 21 days) will no longer be possible if the Company is deregistered. And attempting to reregister in order to appoint a liquidator will generally take a lot longer than the 21 days the ATO gives you to act, so is not going to be a solution.
Hence, the Directors will end up being personally liable to pay the Tax Debts of the Company!!
Note also, the ATO is getting active in this area and has recently issued 50,000 warning letters to Directors about potential DPN's, and is said to be currently sending out actual DPN's at the rate of 30 – 40 a day, and rising! See this story: https://www.smartcompany.com.au/finance/tax/ato-director-penalty-notice-tax-debt/
Bottom line – if your Company has outstanding Tax Debts, allowing deregistration, voluntary or otherwise, may be very risky!
As always, the smartest course is to seek expert advice early! Engage with the Tax office, investigate repayment plans or compromise early, or otherwise, formally liquidate the defunct company using reputable and qualified experts.
Speak to your accountant or an insolvency expert (like us!) if the above sounds familiar and might be relevant to you...
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