Company broke but you're not: check these four exposures today

The company has the debts, but that does not always protect you

Operating through a company is designed to separate business debts from personal assets, and directors are generally not personally liable for the company's trading debts and other liabilities. But that protection is not absolute. You may become personally exposed through guarantees you signed, director penalties for unpaid tax and superannuation, overdrawn director loan accounts or debts incurred while the company was trading insolvent.

These exposures can follow you even after the company enters liquidation. You remain liable for your separate personal debts and any company debts you guaranteed. If your company is under financial pressure, know exactly where you stand personally before the position worsens.

List every guarantee you have signed

Banks or suppliers may require you to give a personal guarantee against unpaid liabilities of the company, which means that if the company cannot pay, you become legally responsible for the debts. Guarantees are often secured against personal assets such as your home. Check loan agreements, equipment finance contracts, trade credit applications and property leases.

List the creditor, the amount guaranteed and whether the guarantee is secured. If the company cannot pay, the creditor can pursue you personally regardless of liquidation. Know the total amount you are exposed to now, not when a creditor demands payment from you personally.

Source: Official guidance

Check that company tax lodgements are current

If your company does not pay certain liabilities by the due date, the ATO can recover these amounts from you personally as a current or former company director, including unpaid amounts of pay as you go withholding, goods and services tax and superannuation guarantee charge. These are called director penalties.

The ATO can recover penalty amounts from you 21 days after issuing a director penalty notice. If the SGC amounts are reported after the SGC due date, the only way to remit the director penalty is to pay the company liability in full within 21 days, because the company did not report the SGC amounts by the SGC due date. Check your company's lodgement status on the business portal or with your accountant today.

Check whether you owe the company money through your loan account

You remain responsible for any debts you may owe to the company, such as to repay a loan received from the company. When a liquidator is appointed, they investigate the company's business, property and affairs, including determining if there are any assets worth recovering for the creditors' benefit. An overdrawn director loan account is an asset the liquidator can pursue.

Check the balance of your director loan account and confirm the record is accurate. If you have withdrawn money from the company and the account is overdrawn, you remain liable for that debt even if the company enters liquidation. Get advice before a liquidator requests repayment.

Get advice before the company's position gets worse

Directors must not allow the company to incur further debts when it is insolvent. A company is insolvent when it cannot pay its debts as they fall due. If the company has traded while insolvent, ASIC, a liquidator or, in certain circumstances, a creditor can commence proceedings against directors personally for amounts lost by creditors.

If your company is experiencing cash-flow pressure, overdue supplier invoices or late tax payments, seek advice now. Once the company enters liquidation, your options narrow. List the guarantees, check the tax lodgements, confirm your loan account balance and act before further debts are incurred. Contact CRP today about insolvency services if your company is under financial pressure and you need to understand your personal exposure.