How a Part X Personal Insolvency Agreement could be of life-changing benefit to you
Thousands of directors are investigating how a Part X Agreement might benefit them as the Australian Tax Office (ATO) steps up efforts to recover $46bn in unpaid tax deemed recoverable.
Such Agreements provide regulated means of managing personal exposure to a business’s financial collapse, of protecting a debtor’s home ownership and other valuable assets, while also resolving legacy debts ahead of likely full force of creditors’ legal action.
A Part X Agreement, allows an individual to propose a structured and binding deal to creditors (including the ATO) to avoid what could be adverse, life-changing consequences of bankruptcy.
Last financial year the ATO issued 26,702 Director Penalty Notices (DPNs) relative to $1.4b in unpaid company tax and superannuation, a 53% increase on FY23.
Macks Advisory is aware that $879m in unpaid tax has so far been recovered because of this action that we see as a prelude to the next wave of ATO enforcement by way of DPNs.
These are notices of personal liability for a company’s tax arrears, and if you receive one as a company director and it lapses, the ATO can take punitive action against you.
You may be issued with a garnishee notice and be the target of other legal action by the ATO aimed at recovering your company’s unpaid tax by way of your personal assets. (For information on DPNs and other means of ATO enforcement, see the article headed “Company directors need to be comprehensibly aware of this” in last month’s newsletter.)
Use the above link or a “Part X” search on the Macks Advisory website Macks Advisory - Corporate Advisory, Restructure & Turnaround, Corporate & Personal Insolvency - Adelaide, South Australia to see a series of articles on the value of a Part X Agreement to directors and creditors.
Eschew procrastination
Procrastination, it’s said, is the thief of time, time that is particularly precious when the ATO’s interest rate is 11.17% on debts directors know they owe. Procrastination can be costly.
ATO interest charges following the issue of lapsed DPNs, means company directors’ personal liability grows rapidly as value of their assets diminishes daily.
Commonly the most treasured asset is a family home that would have to be sold in a bankruptcy. Furthermore, ongoing delay in confronting problems occasioned by company debt, makes it harder for a director to propose a settlement plan that the ATO and other creditors are likely to accept.
And don’t forget, as property values rise and interest on DPNs accrues, creditors’ expectations also increase.
Inevitably, the result of directors’ delay in presenting acceptable payment plans, means creditors become beneficiaries of the capital growth of those directors’ assets.
Be aware bankruptcy can have adverse consequences way beyond forced sale of precious assets. It can mean loss of a bankrupt’s income and capacity to earn – for example because of the loss of a licence or an essential type of registration.
But know also there are circumstances where certain catastrophic consequences of bankruptcy can be avoided, or their risks of occurring greatly lessened under a Part X Agreement.
These agreements can allow offers of assets from debtors’ associates to eliminate debts, also to offer finance against these assets, or cash (as a lump sum or over time).
Alternatively, third party funding can be arranged to settle debts and thus allow debtors to retain financial control over their futures, unrestricted by conditions that would be imposed on them as bankrupts.
Quality advice is vital
Directors about to drown in debt will tend to clutch at an offered straw when what they need is a life jacket, which is why the Australian Restructuring Insolvency Turnaround Association (ARITA) has issued a warning about dodgy insolvency advisers.
ARITA says there’s been a rise in unqualified operators offering misleading guarantees, or encouraging vulnerable individuals to transfer assets to avoid paying expired ATO-issued DPNs and claims from other creditors.
These offerings are not only unethical but dangerously risky. The law has equipped bankruptcy trustees with powerful tools to claw back money owed to creditors, and stressed directors lumbered with personal liabilities from company collapses who take debt-settling advice from unregistered advisors, are likely to see their troubles significantly worsen.
Post pandemic the ATO had tended to be supportive of indebted directors. Payment plans were being approved that now are subject to much closer scrutiny.
While there’s no evidence of systemic misuse of regulations, it’s apparent increasing regulatory focus is reinforcing the need for transparency and accountability in all proposals to deal with tax debt.
We at Macks Advisory would welcome opportunities to offer advice on how a Part X Agreement might help you, or someone you know.
Just be sure whoever you feel you may need to seek advice from about dealing with a DPN, is someone fully qualified to offer that advice --- and don’t procrastinate.
