Company debts come into existence in a number of ways. Normally they are the function of the incapacity to pay for goods or services for any of a number of reasons. In all such cases, company directors assume personal liability where nothing is done to address the company’s debt particularly after a director’s penalty notice has been served on them and the 21 day grace period has expired without action. In addition current amendments mentioned in the last budget clearly indicate that a stricter attitude is being taken to company liabilities which clearly focuses on preventing directors from escaping personal liability. The creditor can now pursue company directors in these circumstances by the removal of the 21 day grace period for certain unpaid company liabilities which remain unreported after 3 months of becoming due.
As we have indicated on a number of occasions, directors of companies are becoming more and more accountable for the liabilities of companies which they represent. In other words, liabilities are now being successfully transferred to individual directors. This may have some unwarranted consequences where a person is convinced to take up a directorship by another person who is an undischarged bankrupt so that the business can continue to operate.
Where this occurs the person who becomes a director may be subject to undue influence by the proposing party which could manifest itself in any number of ways with respect to the company’s affairs. e.g. non payment of bills, non payment of group tax, not meeting BAS obligations, not remitting taxes and often using these funds for private purposes.
Irrespective of the circumstances or whether or not the individual concerned is subject to undue influence that person whether a husband, wife, relative, friend or business associate will be the one who is liable for the debts of the company where action is taken by the creditor to recover them. If you become a director of a company in these circumstances the only person who has anything to lose is you and you need to be completely aware that this could expose you to making good the company’s debts although there are limited exceptions.
It’s for this reason that when a company engages a debt collection they (the directors) will be of sole focus to recovering the bad debt, so depending on where you’re located, for example Adelaide, you’ll be contacted by a debt collector Adelaide to discuss the situation and try to resolve the situation on behalf of their client.
This problem has been encountered in a number of major company collapses involving everything from forestry schemes to the financial services sector to mining companies. This problem has also been encountered with private companies where particular individuals are married or are in a bona fide domestic relationship (defacto relationship) and have been pressured to become company directors by the one who is ineligible.
In some of these situations one party may have money and the other does not and where the one who does not have money tires of the relationship the other is at obvious risk where the company has outstanding creditors including the creditor.