Advisors to business owners are in a powerful position. You are often the first to spot early signs of distress or personal risk exposure, even before your client does. When it comes to director liability, timing and awareness can make all the difference.
At de Jonge Read®, we regularly partner with accountants, lawyers, and financial planners to help their clients manage and reduce exposure, before formal action is needed.
Here are some of the most common risk areas we help clients understand and navigate.
Director Penalty Notices (DPNs)
The ATO issues DPNs to make directors personally liable for unpaid PAYG, superannuation and GST. If lodgements are late, the director becomes immediately liable. There is no second chance.
New directors are also at risk. If they inherit unresolved tax debts, they may be held liable unless the company is brought into compliance within 30 days.
What you can do: Encourage clients to meet lodgement obligations on time (even if they can’t pay) and complete due diligence before accepting directorships.
Non-Compliance Tax (NCT)
Where a company fails to meet PAYG withholding obligations, the ATO may apply a non-compliance tax to directors or their associates. This policy is intended to reverse the benefit of related-party tax credits.
Associates can include spouses and other family members. The broad definitions used by the ATO mean your client may be unaware they are personally exposed.
What you can do: Help clients understand how family members may be affected by corporate non-compliance.
Related Party Loans
Directors often withdraw funds without clear repayment plans. These loans become problematic if the business fails, especially if they were not documented or offset.
Loan balances can become immediate liabilities in administration or liquidation. This may also lead to disputes between parties.
What you can do: Assist clients in identifying undocumented related-party loans and advise on formalising or restructuring them before problems arise.
Guarantees and Credit Terms
Many directors, and even their spouses, sign personal guarantees without understanding the implications. These often sit unnoticed in supplier agreements, trade accounts, and loan documents.
We have seen multiple examples where spouses signed guarantees with no real commercial purpose, but still became liable for large debts.
What you can do: Review loan and supplier documentation with your clients and flag any unnecessary or unclear guarantees.
Preference Claims
Liquidators may pursue preference claims against creditors who were paid ahead of others during the lead-up to insolvency.
While this does not always create personal liability for directors, awareness of payment patterns and proper timing can reduce exposure for the business and its key stakeholders.
What you can do: Support clients in managing cash flow and creditor payments in a way that reduces the likelihood of claims if insolvency becomes unavoidable.
Insolvent Trading and Shadow Directors
Directors are at risk if they trade while insolvent. This is a known risk, but what many do not realise is that non-directors who act like directors may also be liable.
With the introduction of Safe Harbour, there is now a path for directors to protect themselves, but only if they seek advice early and meet the relevant criteria.
What you can do: Refer clients to us for early intervention when solvency becomes uncertain. Help them meet the requirements of Safe Harbour to maintain protection.
Let’s Work Together to Protect What Matters Most
At de Jonge Read®, we support professional advisors with:
- Independent, commercially focused advice tailored to client needs
- Assessments of personal exposure and business solvency risks
- Pre-insolvency planning and practical recovery strategies
- Clear, actionable guidance that complements your professional advice
Your clients rely on you for trusted guidance. We are here to strengthen that relationship by offering specialist support when financial pressures arise.
Let’s work together to help your clients make informed, confident decisions before risks escalate. Contact de Jonge Read® for confidential support and expert insight tailored to your clients’ needs.
Should you have clients or associates that you know are struggling with financial issues or need assistance in reviewing their business affairs in preparation for what’s around the corner, our team of Strategists would be pleased to discuss options that are available on how to best design and implement insolvency strategies. Contact us now on p. 1300 765 080 | ua.mo1772818323c.arj1772818323d@ofn1772818323i1772818323
Did you know?
Phoenixing is another name of business restructure. Read more about business restructures and when this can be an option for you.
