Losing control of a company to appoint a liquidator or voluntary administrator.

Much has been written about director penalty notices issued by the Australian Taxation Office in previous editions of On The Pulse. This has included the ability of directors to avoid the Australian Taxation Office taking action against a director who has been issued with a director penalty notice if (assuming the company lodgments are up to date) they appoint either a liquidator or voluntary administrator to the company within the required time frame.

But what happens if you receive a director penalty notice, but you don't have the ability to appoint either the liquidator or voluntary administrator because you are no longer a director or shareholder of the company?

This was the very case in a recent example for a former director who, for good reasons at the time, resigned as a director of a company some years ago, leaving a remaining director in control. Accompanying the agreement to resign as director was a sale of his share in the company to the remaining director / shareholder. A non-lockdown director penalty notice now arrives claiming an amount validly due for the period prior to the resignation. To avoid the penalty the notice prescribes either the appointment of a liquidator (which can be done by the shareholders of the company) or voluntary administrator (which can be done by the directors). The problem is he is neither a director of shareholder. So, what to do?

The only option which came to mind was to contact the remaining director to inquire whether he had also received a director penalty notice and, if so, to encourage him to appoint either a liquidator or voluntary administrator.

It is an interesting example, with the benefit of hindsight, that at the time of resigning as director and selling the share in the company, to have ensured that not only were all returns up to date with the Australian Taxation Office, but also that all payments which could be the subject of a director penalty notice were also up to date.

We would recommend, that where a director is resigning from a company and selling their shares and leaving its activities to remaining directors, they should get advice from their accountant or lawyer to identify and deal with such issues.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.