This is the process of countering the intentional accumulation of debts to improve cashflow and then liquidating the company avoiding payment of the debt. A new company is set up by the same person or group of people and continues without responsibility for the previous debt.

This noxious process effectively defrauds bona fide creditors. From 1st July, 2011:

(i) directors will become personally liable for superannuation guarantee payments

(ii) the ATO will have the power to commence recovery action against the directors under the director penalty regime (without a 21 day grace period) for certain unpaid company liabilities that remain unreported for three months.

(iii) in some circumstances directors and associates of directors will be prevented from obtaining credits for withheld amounts in their individual tax returns where the company has failed to pay withhelds amounts to ATO.

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.