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Payroll – Director Penalty Notice: ASIC records used as evidence

A recent Western Australia case (DCT v Lim [2019] WADC 106 (26 July 2019)) illustrates  that directors penalty notices (DPNs) can be validly served by being posted to addresses obtained from ASIC records. We have considered the facts of this case through a worked example scenario.

Worked example

Background

Mr Jones is the sole director of XYZ Pty Ltd. XYZ Pty Ltd had failed to pay its outstanding superannuation guarantee charge (SGC) for two periods constituting:

  • the quarters ending 30 June 2012, 30 September 2012, 31 December 2012, 31 March 2012 and 30 June 2013; and
  • the quarters ending 30 September 2013, 31 December 2013, 31 March 2014 and 30 June 2014. 30 September 2014 and 31 December 2014.

In each case, the payment of the amounts assessed was due by the 28th day of the second month after the end of the respective quarter. For example, for the quarter ending 30 June 2012, the due date was 28 August 2012.

Mr Jones failed to cause XYZ Pty Ltd to pay its SGC obligations or cause the company to go promptly into voluntary administration or liquidation by the relevant due dates.

On 18 November 2014, a DPN for the quarters ending 30 June 2012 to 30 June 2013 was posted to an address where Mr Jones no longer resided. The address was obtained from ASIC records. In the case of the other quarters ending 30 September 2013 to 31 December 2014, another DPN was posted on 10 October to an address ascertained from the ASIC records.

Mr Jones did not receive any of the DPNs. Mr Jones had resigned as a director of XYZ Pty Ltd around the end of November 2013. However, his resignation was not updated with ASIC. XYZ Pty Ltd was wound up on 19 August 2015 and deregistered on 13 August 2016.

Question

Was Mr Jones liable for all of the penalties that had become due and payable by XYZ Pty Ltd even though it commenced to be wound up on 19 August 2015?

Answer

DPNs were discussed generally in our Payroll and GST Article – Director penalty notices. Division 269 of the TAA sets out the legislative regime for imposing penalties on directors of companies that fail to comply with their obligations. Currently, the obligations covered by Div. 269 are PAYG withholding and SGC. This is expected to extend to GST (see our GST Article – Significant proposed changes to GST recovery: Recovering estimates and directors’ personal liability).

According to Div. 269:

  • Section 269-15(1): a director of a company (from time to time) on or after the initial day must cause the company to comply with its obligations;
  • Section 269-15(2): the directors of the company continue to be under their obligation until the company complies with this obligation and settles the outstanding amounts in full or the directors cause the company to be wound up.
  • Sections 269-20(1) and 269-20(2): directors are liable to pay to the Commissioner a penalty if at the end of the ‘due day’ the directors are still under an obligation under s. 269-15. The penalty is due and payable at the end of the due day (i.e. 28th day of the second month after the end of the respective quarter).

The Commissioner must not commence proceedings to recover a penalty from a director until the end of 21 days after the Commissioner gives a written notice (i.e. DPN) under this section.

In the present case, the initial dates are as stated above and the last ‘initial day’ is 31 December 2014. The last ‘due day’ was 28 February 2015. The fact that the director of XYZ Pty Ltd did not receive the two DPNs does not preclude the DPNs from being validly served. Under s. 269-25(4), a notice is taken to be given at the time the Commissioner leaves or posts it. According to s. 28A of the Interpretation Act 1901 (Cth), a document may be served on a natural person at the place of residence or business of that person that last known to the person that is serving the document. Section 269-50 of the TAA states that the Commissioner may give the DPN by posting it to an address that appears from information held by ASIC to be, or to have been, the defendant’s place of residence or business within the last seven days.

The combination of these three provisions lead to the conclusion that the notices have been given in accordance with the legislation, and were given on 18 November 2014 and 10 October 2015 respectively. While the director had indicated that he had resigned and was no longer a director of XYZ Pty Ltd, there was no evidence as to the appointment of another director to replace him, there was no ASIC record to corroborate that he had indeed resigned, he continued to work in the company as a ‘manager’ and the company continued to operate until winding up commenced on 19 August 2015. Therefore, the view taken was that the individual continued on as the controlling mind of the company in the capacity of a director, even if only a de facto director.

Accordingly, the defendant (as a sole director at the time) was liable for all of the penalties that had become due and payable at the end of all the pleaded due days, the last of which was 28 February 2015. The fact that the company commenced to be wound up on 19 August 2015 is irrelevant.

Key take away

The above case illustrates the importance of updating ASIC records. Had there been contemporaneous evidence to support Mr Jones purported resignation and the appointment of another director to replace him as a director, the outcome of this decision could have been different.