What is tax planning? Essentially, tax planning is something you do to put your business into the best possible tax position. After all, nobody... Read more
Our friends at Travancore Legal & Advisory have been our go-to support for legal advice during this COVID-19 global crisis and have put together this article to help other businesses during this time.
Right now, all business owners should ensure that they do not allow COVID-19 related stress to divert attention away from closely monitoring their financial operations – particularly poor cashflow, ongoing losses and unpaid creditors outside usual trading terms. If you suspect your business is in financial difficulty, get competent accounting and legal advice as early as possible, as this increases the likelihood of your business surviving, and once this crisis passes (as it surely will) – thriving!
Statistics show that one of the most common reasons for the inability to save a business in financial distress is that professional advice was sought too late. Don’t let that be you!
Directors should also be mindful of ongoing statutory obligations (particularly in relation to the ATO) and continue to work closely with their accountants to ensure compliance. If you receive a director penalty notice from the ATO for your company’s unpaid and unreported PAYG withholding or SGC amounts, you should immediately seek professional advice. Failure to take appropriate steps within 21 days may result in the Commissioner of Taxation taking recovery action against you personally for an amount equivalent to the unpaid tax.
Insolvency is the inability of an individual or company to pay their debts as and when they fall due. If your company is insolvent, first and foremost, do not allow it to incur further debt. This is because you have a specific duty as a director to prevent your company trading whilst it is insolvent but also, the scope of your general duties as a director are expanded to include the interests of creditors (including employees) when the company is insolvent or near insolvency. Insolvent trading can have serious consequences for directors. There are various penalties associated with insolvent trading, including civil penalties, compensation proceedings and even criminal charges.
Liquidation is, of course, the least attractive of these options and that outcome is best avoided by seeking professional advice as early as possible.
The external administrations described above relate to companies but the principles of cash flow management, working capital repair and ongoing compliance apply just as much to businesses conducted by individuals or partners. If you are an individual business owner facing financial distress, you may not have the capital back-up of a larger business, but you will probably have the agility and responsiveness that they do not have. Just as with companies and larger businesses, you should seek advice early and if repair is not possible, you may be able to enter into a personal insolvency agreement rather than becoming bankrupt.
Act now, survive and thrive!
Arnie S Narayan
Travancore Legal & Advisory
Rodney Quinn, Quinn Transport
Phillip Cross, Royce Cross Agencies