This week’s TGIF examines a recent NSW Supreme Court decision that illustrates the circumstances in which a person will be regarded as a ‘de facto director’ and the duties owed to creditors when facing insolvency.

Key takeaways

In April 2022, the ATO began writing to batches of company directors in relation to unpaid liabilities informing them about the risk of their personal liability for unpaid company tax debts. If not actioned, directors are at risk of receiving a Director Penalty Notice (DPN).

These letters pre-DPN will continue to be sent to directors of companies if that company has not met its obligations for all or either of PAYG withholding tax, Superannuation Guarantee Charges (SGC) and GST. So far, approximately 80,000 of these letters have been sent out.

There is growing concern in business news and media about the increase in insolvency appointments. Many experts are warning that the country is going to see a significant rise in insolvencies following the pandemic.

What’s the cause?

In the 1500s, debtors in England would avoid paying their debts by transferring property to friends or family as a gift or for undervalue, move to a sanctuary such as church land, wait for their creditors to exhaust their efforts or come to a favourable settlement of the debt, and then return and take a re-transfer of the property. This was a fraud on the creditors.

To prevent this mischief, in 1571, Parliament enacted the Fraudulent Conveyances Act (13 Eliz I, c 5), known as the Statute of 13 Elizabeth, and in Australia, as the Elizabethan Statute. It provided:

I have written approximately 130 Helix Legal articles where I have focused on conveying information to readers concisely, factually and always looking to be positive.

I do not like ‘shock and awe’ articles where the clear intent is to scare people into doing something. There are much better ways to engage with people.

However, on the other hand, I have never shied away from raising awareness on significant industry issues that are confronting, and indeed very uncomfortable to talk about.

In the wake of the Victorian Court of Appeal’s decision in Cant v Mad Brothers Earthmoving [2020] VSCA 198 (‘Cant’), the Supreme Court of New South Wales’ recent decision in Re Western Port Holdings provides further encouragement for liquidators to pursue unfair preference claims with respect to third party payments and payments made during the operation of a deed of company arrangement (DOCA).

Key takeaways

Times are changing rapidly with the current flow of Coronavirus measures introduced to support businesses in debt and distress.

We take a look at what creditors can (and can’t) do to help better protect their position.

I’m owed money. What can I do?

Certain recent government measures may impede your ability to take recovery or enforcement action at the present time. The good news is that many avenues remain available.

You cannot (in some cases):

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In an unprecedented move the Federal Government has announced temporary changes to some aspects of existing insolvency laws as part of the plan to try and keep businesses operating during this unique health crisis time.

Insolvent Trading

The Australian Government has announced temporary measures to curtail the impact of COVID-19 on Australian businesses by lessening the threat of otherwise viable businesses being placed into external administration. In part, these measures seek to prevent the winding up of companies which are experiencing short term financial distress and protect company directors from potential personal liability in order to incentivise continued trade through the COVID-19 health crisis. Similar temporary relief measures extend to individuals in financial difficulty.