It’s clear that this year has been one of the worst for Australian businesses since the global financial crisis of 2008. Corporate insolvencies are currently at a record high. As a business director, you may be of the belief that only company assets can be seized to pay off company debts. However, you can also be held personally liable.
Whether your company is currently in arrears or you simply want to ensure that you are protected in the event of financial trouble in the future, here are ten tips for directors who want to minimise their risk of being held personally liable.
#1. Be Proactive
It’s important that you are proactive about paying off your business debts and transferring personal assets that could potentially be seized to pay them. For example, you could transfer ownership of your residential property to your spouse.
#2. Conduct Research
If you have not yet accepted the offer of directorship of a company, it is vital that you conduct due diligence beforehand to determine the PAYG and superannuation liability position of the business. Bear in mind that new directors can be held personally liable for debts incurred after as little as two weeks.
#3. Act Quickly
The consequences of delaying dealing with business debt can be irreversible. So, act quickly to ensure that you are protected.
#4. Seek Advice
Seeking legal advice about debts and tax when it is too late can lead to further problems that could have been avoided. So, get professional advice about your situation as soon as possible.
#5. Get Insured
Director’s insurance is available to help minimise your level of risk when it comes to being held personally liable for company debt. Talk through your insurance options with an insurance broker or business lawyer.
#6. Consider Payment Plans
If you are struggling to pay off a business debt, it’s advisable to get in touch with your creditor straight away and request a payment plan. Many creditors are happy to accept reduced payments when pre-arranged.
#7. Keep Details Updated
Ensure that all your ASIC details are kept regularly up to date.
#8. Borrow Money
If possible, you may want to consider borrowing further money to pay off debts and eliminate arrears. This is often more cost-effective than paying general interest charges.
#9. Be on Time
Ensure that you submit your company’s Superannuation Guarantee Charge Statements and BAS forms on time. Even if you are unable to pay them, this will protect you from personal liability.
#10. Other Options
There are provisions set out in the Corporations Act which can help rescue your business without going into liquidation. Speak to your lawyer for advice.
Any questions? Just get in touch.
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