Newly appointed directors can be in for an unexpected surprise and held personally liable for any unpaid superannuation of the company to which they have been appointed.

If the company has not paid the superannuation guarantee charge (SGC) by the applicable due date (being 28 days after the last day in each fiscal quarter), the directors of the company, including newly appointed directors, become personally liable for the payment of the unpaid SGC amount unless the company pays the SGC.

New directors can even be liable where the SGC payment fell due prior to the date of their appointment. Unfortunately, those directors often first learn of this liability when they receive a penalty notice.

A way out

However, there is a way out if a director moves quickly.  A new director can obtain remission of their personal liability if, within 30 days of the date of their appointment, the company either:

1. pays the SGC debt in full,
2. is placed into voluntary administration, or
3. is placed into liquidation.

If none of these events occur, the new director cannot escape personal liability, even if they were to resign within the 30 day period.

This penalty regime equally applies to current and former directors.

What happens if only some of the SGC has been paid?

If the SGC is not paid, the company is required to report the unpaid amount to the ATO within one month of the due date and make the payment as soon as possible thereafter.

If, after 3 months, the company has still not made the SGC payment, but has reported the unpaid amount to the ATO as required, there are actions which can be taken by a director which may avoid personal liability.

The ATO will remit the director’s personal SGC debt if the company has reported the unpaid SGC amount and within 21 days of the director receiving a Directors Penalty Notice:

1. the company pays the debt in full;
2. an administrator is appointed under section 436A, 436B or 436C of the Corporations Act 2001; or
3. a liquidator is appointed to wind up the company.

If the unpaid SGC payment is not reported to the ATO by the company within 3 months of the due date for payment, then the ‘lock-down’ provisions of the regime apply, and the director(s) are personally and permanently liable for the debt.

The only way to have this personal debt remitted is for the company to pay the debt in full.  Placing the company into liquidation or voluntary administration is no longer an option.

Take-away

If you are, or are considering becoming, a director, you should enquire as to the company’s financial position, including in relation to SGC liabilities and of course to take quality legal advice from a competent law firm as to your director’s duties to ensure your liability remains limited.

For more information contact ERA Legal.