December 2024 Round Up
With recent reports showing Australian business insolvencies up 39% in 2024 and increased ATO collection activity, understanding both your business options and director obligations has never been more important. This month, we break down the practical steps you can take to protect your business interests and meet your responsibilities as a company director:
1. SME Insolvencies: Smart Survival Moves for Your Business in 2025
2. Director Liability for a company – how does it work? – Read the full article
SME Insolvencies: Smart Survival Moves for Your Business in 2025
The business headlines tell quite a story lately. With business insolvencies across Australia up 39% in 2024, you might be wondering what’s next. But here’s the good news: there are practical steps you can take right now to keep your business strong and stable.
What’s Really Going On Out There? The ATO has definitely been flexing its muscles lately, sending out nearly 27,000 director penalty notices for $4.4 billion in unpaid taxes. Add in rising costs across the board, and it’s no wonder business owners are feeling the pressure.
Here’s What You Can Do About It
- Get Savvy with Your Cash Flow: Forget annual projections – they’re so 2023. Switch to a 13-week rolling cash flow forecast instead. It’s like having a GPS for your business finances, showing you exactly where potential problems might pop up before they become real headaches.
- Stay Ahead of the ATO Game: The ATO’s getting pretty serious about collecting debt these days. The smart move? Don’t wait for them to come knocking. With interest charges sitting at 8.77% per annum, it’s worth getting on the front foot with a solid payment plan. Trust us – they’re much more likely to play ball if you approach them first.
- Check Your Business Structure’s Still Working For You: With all these director penalty notices flying around, it’s worth making sure your business structure is protecting you properly. We’re seeing great results with dual-entity structures – keeping your trading activities separate from your assets can be a real lifesaver.
- Don’t Put All Your Eggs in One Basket: Here’s a scary stat: 25% of SMEs could go under if they lose just one key client. Time to spread those wings a bit! Whether it’s adding new services or branching into related markets, having multiple revenue streams can help you sleep better at night.
- Know Your Lifelines: If things do get tough, there’s more help available than you might think. The small business restructuring process has been a game-changer for many businesses, with 89% of companies who’ve used it still going strong. If your business has less than $1 million in liabilities, this could be your ace in the hole.
Ready to Take Action? Book in with us to:
- See how you stack up against industry benchmarks
- Check if you’re eligible for government support
- Put together a solid risk management plan
- Make sure your business structure is still serving you well
- Map out your game plan for the next 12 months
Don’t wait until things get tight – the earlier we can help you plan, the more options you’ll have. Give us a call to get started – we’re here to help you make 2025 your business’s best year yet.
Director Liability for a Company – How Does it Work?
As a director, your responsibilities don’t end when your company ceases trading. Even after a business stops operating or is deregistered, you may still be personally liable for certain obligations. This includes situations where the company has debts or becomes insolvent.
If a company is insolvent—meaning it can’t pay its debts as they fall due—directors can be held accountable. Signs of insolvency often include low cash flow, delayed payments, and legal action from creditors. Directors are legally required to assess the company’s financial position regularly to determine if insolvency is a risk. Failing to take timely action can lead to personal liability for unpaid debts.
Directors can also face personal liability for company losses if they breach their duties. This could lead to civil penalties, criminal charges, or even disqualification from managing companies in the future. Breaching director duties includes failing to act in the company’s best interests or not meeting the required financial obligations.
Under the Director Penalty Regime, directors may be held responsible for unpaid taxes, particularly PAYG withholding and the Superannuation Guarantee Charge. This means that even tax debts can fall on directors personally if not addressed by the company.
Additionally, if directors have provided personal guarantees for company loans, they may be liable to repay those loans if the company defaults. Personal assets, such as a home, could be at risk if the company fails to meet its financial obligations.
In cases where the company acts as a trustee, directors may also be liable for any breaches of trust or if the company acts beyond its powers.
Finally, directors involved in illegal phoenix activity—transferring assets to a new company to avoid paying debts of an old one—may face severe legal consequences, including personal liability and criminal charges.
In short, being a director comes with ongoing responsibilities, and personal liability can extend far beyond the active life of a business. Understanding these obligations is crucial to protecting yourself and your assets. If you’re unsure about the extent of your liabilities as a director or need specific advice tailored to your situation, please don’t hesitate to contact us. Our team is here to help ensure you’re well-informed and protected in your role.
Important: This is not advice. Clients should not act solely on the basis of the material contained in this article. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. This article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval. Liability limited by a scheme approved under Professional Standards Legislation.