Director Liabilities
One of the major advantages of operating within a company structure is the benefit of asset protection. Broadly speaking, company owners are protected from creditors if their company fails. However, there are two notable exceptions!
The first of these is where a director offers a personal guarantee. Companies often require financial support to secure loans, leases, or credit facilities to foster growth and development in the dynamic business world. To assure lenders or creditors, directors of companies in Australia may be asked to offer personal guarantees. These guarantees, known as “Directors’ Guarantees”, play a crucial role in ensuring that the obligations of a company are met.
Such guarantees are essential for three reasons:
- Access to Funding: By providing a personal guarantee, directors can help their companies access financing that might otherwise be difficult to obtain, especially for new businesses. This may be in the form of Equipment Financing or creation of an Overdraft Facility.
- Credibility: A director’s willingness to guarantee a company’s obligations can enhance the company’s credibility and trustworthiness in the eyes of creditors and prospective business partners.
- Risk Mitigation: For creditors, a Directors’ Guarantee serves as a safety net, ensuring that someone personally takes responsibility for the company’s obligations, reducing the risk of financial loss.
Directors should know that providing a Directors’ Guarantee carries significant personal risk. If the company defaults on its obligations and the director cannot cover the debt, its personal assets may be at risk.
Along with director guarantees, owners of companies may also be personally liable under the director penalty notice regime. As a company director, you also personally become liable for your company’s unpaid amounts of:
- Pay as-you-go withholding (PAYGW)
- Goods and services tax (GST)
- Super guarantee charge (SGC)
These amounts that a director is personally liable for are called “director penalties”. The ATO can recover the penalty amounts once they issue a director penalty notice. To be clear, a director is responsible for ensuring the company meets its PAYGW, net GST and SGC obligations in full and by the due date.
Talk to us if you are still determining your director’s liabilities or have any further queries in relation to your director responsibilities.
