NEWSLETTER AUTUMN 2007
26 06 2007
This publication is produced by Foremans Business Advisors specifically focusing on insolvency issues relevant to accountancy practices. In this edition we look at the double “whammy” that is the SGC, another ASSET PROTECTION issue, this time relating to Section 197 of The Corporations Act, and the NATIONAL INSOLVENT TRADING PROGRAM conducted by ASIC.
THE SGC DOUBLE "WHAMMY"
The Superannuation Guarantee Charge (“SGC”) is a tax that arises under the Superannuation Guarantee (Administration) Act. Although an employer may have paid the employees’ outstanding superannuation to their respective superannuation funds (albeit late) the amount will need to effectively be paid twice if the late payment gives rise to a SGC in respect of same. Most of you have probably advised your clients of this “anomaly” and to question whether it is better that any late payments are made to the Australian Taxation Office directly rather than the employees’ respective superannuation funds.
In March 2007 this double “whammy” issue became reality when a company appointed us as Voluntary Administrators due to an audit by the SGC department having assessed some years later a liability in excess of $100,000 as a result of the company having paid its superannuation commitments late to the respective superannuation funds. The SGC, arising some years later as a result of the audit, was essentially the only creditor of the company but the company could not afford to pay what it considered to be the same amount twice (despite by law the SGC being considered a completely separate debt).
We therefore urge you to reinforce to your clients that the late payment of superannuation and the subsequent arising of the SGC is not just a theoretical issue raised by “overly conservative accountants” but a clear and present danger to their company, its assets and future.
SECTION 197 - STING IN THE TAIL!
Amendments were made to Section 197 of the Corporations Act several years ago to reduce the exposure to personal liability of directors of Corporate Trustees. However, a recent matter that we have been involved in highlights the real risk that a director of a Corporate Trustee can still have their personal assets at risk from acting in that capacity despite those amendments.
From a Liquidator’s perspective, litigation under Section 197 can be a much easier cause of action against a director personally than the insolvent trading provisions which require the proving of insolvency and, generally therein, the preparation of an expert insolvency report which can be a costly and time consuming task.
Under Section 197, a person who is a director of a Corporate Trustee is personally liable (and jointly liable with the Corporate Trustee) to discharge a liability that is incurred by the Corporate Trustee (but not able to be discharged by that Corporate Trustee) in circumstances where the Corporate Trustee is not entitled to be fully indemnified against the liability out of the trust assets due to:
- a breach of trust by the Corporate Trustee;
- the Corporate Trustee acting outside the scope of its powers;
- a term of the trust denying or limiting the Corporate Trustee’s right to be indemnified against the liability.
The circumstances in our matter were that the director of the Corporate Trustee had transferred assets of the trust to another entity approximately four (4) years prior to our appointment as Liquidators for what was considered to be less than valuable consideration. The business being operated through the trust had not traded for those four (4) years and as the years past the director had accumulated personal wealth through property investment.
We attacked the transfer through Section 197 (and thus the director personally) on the basis that the transfer at under value was a breach of trust and that had valuable consideration been paid the liability would have been able to have been discharged. The director’s personal assets that had accumulated since the ceasing to trade of the business some four (4) years earlier were now available to us in recovering our claim.
NATIONAL INSOLVENT TRADING PROGRAM
Recently we met with the ASIC representatives who had visited Cairns to undertake the National Insolvent Trading Program. The program aims to make directors aware of the company’s financial position and their responsibilities therein if the company may be insolvent.
A director of a company that is selected is required to provide all documents requested under a Notice issued under either Section 30 or 33 of the ASIC Act. Generally the review will take place at the principal place of business of the company.
Generally most of the records requested will be retained by the ASIC officers. Where appropriate the ASIC may ask that the company approach an Insolvency Professional. In certain cases the ASIC may take action directly or seek enforcement action.
From 1 July 2006 to 28 February 2007, ASIC have conducted 308 visits to companies throughout Australia which have resulted in an Insolvency Practitioner having to be appointed on 36 occasions (11.7%).
FREE ONE HOUR INITIAL CONSULTATION
Fortunately most of your clients won’t ever need our help, but it’s a certainty that some will benefit enormously from our specialist advice at some stage. We offer a free initial consultation with you and/or your client to discuss the needs and possible solutions. After that you and your client can decide whether you want our help or not.
Carins - Call Todd Kelly or Peter Morris to arrange a free consultation on 07 4052 1655
Melbourne - Call Dean McVeigh or Vincent Savage to arrange a free consultation on 03 9521 6662