Advise on dodgy buyer

How did you go with this?

 

Can anyone in layman terms explain how you can setup a company . Rack up debts and bankrupt them repeatedly.
I don't get it

 

A company is a separate legal person and the shareholders and directors are not generally liable for its debts.

If a company racks up debts, and no security or personal guarantees then the creditor doesn't have much hope of recovering money. It can only go after the company's assets, which is usually nothing.

What often happened in the building industry was GST wasn't paid. Build and sell $20,000,000 with of units, and keep the $2mil in GST - get it out of the company somehow, and then just wind up the company or resign and let the ATO wind it up.
The laws are changing now to make directors personally liable for unpaid GST. So what they will probably do is to pay some young guy say $20k to act as director and leave him with the problem.

 

Thats what I thought, however, when I signed a commerical lease I needed a personal guarnatee, so if I ran away, then they could chase me down.

In my limited expereince in being a company director, every bit of contract or commitment needed a credit check from me and often a financial guarantee by me or responsbile by me.

one of my friends boss, what they do which I think is ludcrous is they have been in business for 20 years +
they have an office, and the wife puts the business in her name, rack up $250k+ in ato debt, file for bankrupcty, then the husband registers the business, and rinse and repeat, so the office doenst change nor does the business name except for legally...

if what they do is true, the laws really suck

 

Yes the old serial bankruptcy trick works. This is why it is important to run a bankruptcy search on those you are dealing with in investing and business.

 

Same as not all accountants can give tax advice or do tax work. And not all tax advisers can / should give all tax advice.

They key issue is education, qualification, experience, memberships and insurance. If you lack any of that then its better to refer. I often refer certain tax issues where I consider I lack experience and expertise. eg R&D concessions as an example. If someone asks for advice its expected you either know it or say you dont. And no in between.

There are tax solicitors and barristers I know who specialise in tax advice but its typically high risk, complex and uncertain issues where sometimes a legal position MUST be argued or defended. In those situations a tax solicitor is preferable to the most talented tax accountant. And some are both.

The ones who are tax advisers, practitioners and solicitors are rare and are sometimes very good people to represent matters as their knowledge and skills spans two professions BUT they are often not cheap. Its like having two experts across the desk.

 

Company Directors arent personally liable for trading debts of the entity. However if they trade while insolvent the Corporations Act addresses this but it may be defended or be difficult to prove. Some tax law deals with some unpaid tax obligations.

Pheonixing involves placing a entity into liquidation and winding it up and arguing that the Director who made the declaration didnt know about unpaid debts. The company has no traceable assets so re-registration and recovery is sometimes impossible and tracing funds with poor records makes a liquidators job almost impossible. It was pheonixing that saw Junior Cranston pinged by the ATO. It became a criminal intelligence exercise across a range of agencies. Same address but different names was the key issue. The "straw men" were the names but the puppets were held by others.

Its a serious crime and changes are now proposed to make Directors and past Directors personally liable for more and more eg unpaid contractors, unpaid GST, super and all taxes etc so that enforcement can occur with known people after the entity has been struck off. But then you can bet they have few assets. The other change is to make a Director who is involved with a company traced to a real ID. Its possible and far too easy to register a company in fake names and use stolen or cultivated ID to get ATO registration. The ATO has background tests to catch some early.

If there is a way the crims (and some dodgy advisers !) will find it...Look at CBA ATMs - Within hours of being installed the crims were banking alleged proceeds of crime.

They are getting better at catching these company managers. Just last week : Frank Criniti banned from managing companies for five years
This matter has been playing out since 2012 in varying ways

 

Sometimes 2 heads are better than 1.

 

Yep I was thinking that

 

There is also the matter of commerciality. Insolvent trading claims are essentially a damages claim and can only be pursued by a liquidator. Most of the time not commercial to pursue even if there is a case to answer for. Rarely any are pursued.

Phoenixes are actually more than what you’ve described... it’s where a director transfers assets away from an entity for no consideration (or less than market value), leaving the entity with no assets but all the debt. Knowledge of the debts is less of a consideration as a director has an obligation to be informed (director duties under Corps Act).