From 1 January 2021, a new small business restructuring scheme (“SBR”) became available to certain companies, in order to help them settle debts they owe. We have previously looked at how the SBR works in this article.
However, there are various issues which directors should be aware of when considering SBR as an option to solve a company’s debt problems.
A company cannot have any overdue tax lodgements
One of the key requirements to be eligible for SBR is that a company must not have any materially overdue tax lodgements. Often, tax lodgement is not a priority for companies that are struggling financially. It can be costly for many of these companies to now catch up with their tax lodgements.
For those that have their tax lodgements up to date, it is not a requirement for tax debts to be fully paid.
Employee entitlements paid
One other key requirement is the need for employee entitlements to be paid up to date, including superannuation payments. Most business we see have some outstanding employee entitlements, particularly unpaid superannuation. Unfortunately, these types of companies will not be eligible for SBR.
Personal liability of directors
Directors who have personal liability for company debts will not escape this liability under SBR. Some of these liabilities include:
- Personal guarantees – a director who provided personal guarantees for a company’s debt will remain liable for the shortfall of that debt, even if SBR is successful.
- Director penalty notices – a director penalty notice (“DPN”) is issued by the Australian Tax Office to recover unpaid PAYG tax, GST and/or the superannuation debts of a company.
The rules relating to lockdown DPN will still apply despite having appointed a Small Business Restructuring Practitioner under the SBR scheme. A lockdown DPN can be issued by the ATO for companies that have not lodged their tax lodgements within the time required. Directors issued with a lockdown DPN will therefore continue to be liable. It is also worth noting that the ATO can issue a lockdown DPN after the business has been successfully restructured under SBR.
More information on DPNs can be found here.
Under the Queensland Building and Construction Commission Act 1991 (Qld) (‘QBCC Act’), placing a business under the new restructuring regime will pose a problem to directors who hold a Queensland Building and Construction Commission (‘QBCC’) licence.
Under the QBCC Act, individuals will have their QBCC licence cancelled if they:
- are a director, secretary or influential person of a company which is involved in the building and construction industry at the time which SBR begins; or
- held such a position at any time during the one-year period prior to such an appointment.
Further, the director will also be excluded from being able to control a company that holds a QBCC licence for three years.
Contact Us For Assistance
If you are considering opting for the SBR Scheme and are not sure whether there will be personal consequences, we can help. Get in touch on 1300 906 966 or send us an email to email@example.com to arrange a free confidential, no obligation initial discussion today.