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End of the corporate veil for SMEs?

Close-up of businessman stopping the effect of domino with hand

A bill that was reintroduced to parliament in July 2019 may spell the end of the corporate veil separating directors from their business liabilities. If the bill is passed, the ATO will have the ability to hold directors personally liable for their companies’ GST obligations.


What is the corporate veil?

The corporate veil refers to the concept that a company is a separate and distinct legal entity from its directors and shareholders. The main benefit of the corporate veil is that if a company finds itself in legal or financial trouble, that trouble does not extend to the directors or shareholders, nor puts their personal assets at risk.

Piercing the corporate veil

Over the years, the protection afforded to directors by the corporate veil has slowly been eroded. For example, the director’s penalty regime means directors are personally liable for their company’s obligations in relation to PAYG withholding and superannuation guarantee charge (SGC) obligations.

This legislative regime is coupled with modern practicalities, as it is now par for the course for financiers and suppliers to require personal guarantees from directors before extending any finance or credit facility. These personal guarantees allow a creditor to pursue a director, and their assets, to recover any debt (even before they take action against the company).

Combating Illegal Phoenixing

The corporate veil is set to take another hit with the reintroduction of the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019, which was reintroduced to federal parliament in July this year. If passed, this legislation will allow the ATO to make directors personally liable for their companies’ GST obligations.

What this means for you

This personal liability for tax debt, and almost inevitable exposure from personal guarantees, means that it is essential that directors of small to medium sized enterprises obtain taxation, asset protection and planning advice whenever they are:

  1. starting a new company or business;
  2. obtaining a new line of credit or finance facility;
  3. purchasing a business or shares in a company;
  4. planning for the provision of their Estate; or
  5. concerned about their personal exposure as a director.

We have experts in the fields of taxation, asset management and commercial law who can facilitate risk minimisation measures to protect your assets and the assets of your family. Contact us now to start the conversation.

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