DIRECTOR'S PENALTY NOTICES
28 02 2008
DIRECTOR’S PENALTY NOTICES
IT DOESN’T MATTER THAT YOUR CLIENT NEVER RECEIVED THE NOTICE!
Many directors appear to hold the mistaken belief that it matters whether they actually receive the Director’s Penalty Notice (“DPN”) from the Australian Taxation Office “(ATO”). The recent decision handed down on 10 December 2007 in the matter of Deputy Commissioner of Taxation v Meredith [2007] NSWCA 354 makes it clear that a director need not receive the DPN for the DPN to have its effect.
What is relevant is whether the DPN was delivered. Section 222AOE of the Income Tax Assessment Act states that the Commissioner will satisfy the precondition to the entitlement to recover the penalty if a notice is sent by post to the director’s address as found in ASIC records.
In the above decision the director argued that there was “non-receipt” of the DPN. The Judges in arriving at their decision said that non-receipt was not a relevant consideration and that what they needed to be satisfied with was whether the Commissioner had satisfied the law by the act of sending the notice in accordance with the statutory prescriptions.
It is therefore critical that your clients notify the ASIC of each and every change of address as this appears to be the address for delivery that the ATO relies upon.
WHEN DOES THE 14 DAY TIME PERIOD FOR THE DIRECTOR’S PENALTY NOTICE BEGIN?
Section 160 of the Evidence Act provides that it is presumed that a postal article sent by prepaid post to a person at a specified address was received at that address on the fourth working day after having been posted. Previously this gave rise to an argument that the 14 day period under the DPN would not commence until the fourth business day after posting. This is apparently not correct.
Recently the ATO confirmed that the date of the DPN is the commencement date of the 14 day period. Although the ATO recognised that directors who lived in regional areas (where the post may take more than 2 or 3 days to arrive) may be at a disadvantage, the ATO will make no time adjustment for that situation.
DEFENCES TO A DIRECTOR’S PENALTY NOTICE
It is not often that successful defences are established in respect of a DPN. Several cases wherein the director escaped liability are discussed below.
Case 1 – All Reasonable Efforts Defence
If a company fails to meet its agreement with the ATO under s222ALA then anyone who was a director at any time from the date the agreement was entered into up to the date of the contravention of that agreement is personally liable for the balance payable under the agreement.
It is a defence if the director can prove that he or she took all reasonable steps to ensure that the company complied with the s222ALA agreement. In Deputy Commissioner of Taxation v Ruddy [2001] QDC 28 the Court determined that there was no other reasonable steps that Mr Ruddy could have made to ensure that the company complied with the s222ALA agreement.
The Court, as a result, dismissed the ATO’s claim against the director with costs.
Case 2 – Illness Defence
It is a defence if it is proved that, because of illness or for some other good reason, the person did not take part in the management of the company. Historically the ATO’s position was that even if you were ill, were you for arguments sake still able to do your weekly grocery shopping. If yes, then as far as the ATO were concerned you would have difficulty relying on the illness defence. The attitude of the ATO at that time incorporated whether, irrespective of illness, were you capable of managing the business?
It took individuals representing themselves (thus minus barristers and lawyers) to win this argument against the ATO relying on the illness defence. Commissioner of Taxation v Lister & Anor [2002] QCA 270 was the hearing of an appeal as to a Judgment debt obtained by the ATO in the first instance relating to a DPN. It was the argument of Mrs Lister in the appeal that due to illness “she chose not to take part” in the management of the company.
Her husband, appearing for both himself and his wife in the appeal, argued before the Court that the defence to be proved was not whether due to illness his wife “was capable” of taking part in the management of the company but whether the person “did not take part” in the management of the company.
Mr Lister argued that due to illness his wife chose not to take part and that was all that was required to meet the defence. The Court agreed with Mr Lister on his wife’s behalf and allowed the appeal and set aside the original Judgment against Mrs Lister.
If you have any questions concerning the above topics or about insolvency matters generlly, please contact:-
Carins - Call Todd Kelly or Peter Morris to arrange a free consultation on 07 4052 1655
Melbourne - Call Dean McVeigh, Craig Bolwell or Vincent Savage to arrange a free consultation on 03 9521 6662