Whilst businesses always plan to succeed, statistics show that about 1 in 2 new businesses fail in the short to medium term. For this reason, it is always relevant when choosing a business structure to consider the personal liabilities for the business owners should things not go as planned.
Traditionally, trading through a structure like a company offered a significant degree of insulation from personal liabilities. With some fairly narrow exceptions, the worst-case result for the business owners was the loss of the money they put into the business. Business failure did not spill over to the separate assets of the business owners.
In more recent times, things have changed significantly. It is now much more difficult for business owners to avoid personal responsibility even when the business is run by a company.
An example of this is the recent Federal Circuit Court decision in FWO v Step Ahead.
In that case, the Fair Work Ombudsman successfully argued that particular sections of the Fair Work Act operated to make “accessories” such as company directors, personally liable to pay unpaid employee entitlements.
The case involved the failure of a private security business operating through a company structure with a Mr Jennings as it sole director, which had underpaid its staff in numerous respects.
Mr Jennings was found to be jointly and severally liable for wages and entitlements underpaid of some $23,000. On any view, Mr Jennings was not an innocent bystander:-
- He was in sole control of the company,
- two previous associated entities had failed, in one case leaving employee entitlements unpaid, and
- a new company had been formed to take over the operations previously conducted by Step Ahead, cosmetically controlled by Mr Jennings’ son but with Mr Jennings in de-facto control.
The case is not however limited to the “rogue operator” situation. It has significant implications for all people involved in the management and ownership of businesses..
At Everingham Solomons, we have the experience and expertise to provide advice to businesses at all stages from formation to closure.
Because Helping You is Our Business.
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