Personal liability for superannuation guarantee (SG) appears to be of little consequence to directors who find themselves in trouble, according to the Australian Institute of Credit Management (AICM).
In a submission to the Senate Economics Committee inquiry into superannuation guarantee non-payment, the AICM non-reporting of (SG) obligations was a common method employed by businesses experiencing insolvency issues.
“Further, while companies may cease payment of the SG before most other creditors this is generally not evident until a formal insolvency appointment, meanwhile creditors have continued to provide credit to these businesses unaware of the breach of a fundamental obligation,” it said.
The submission said that due to the hidden nature of the default, credit providers were unable to mitigate the risk inherent in these businesses.
“This issue is further compounded by the fact that although directors face personal liability for the superannuation guarantee and other debts incurred whilst insolvent this does not deter most directors,” it said.
Referring to Australian Securities and Investments Commission (ASIC) data suggesting that insolvent trading occurred in 60 per cent of cases, the AICM said such statistics “indicate that the majority of directors when faced with potential insolvency are not concerned about their personal liability and are operating under one of three approaches:
“Considering there is very limited recovery and/or enforcement of director’s liability, the cost of insolvent trading is borne by creditors and the practice continues to increase,” the AICM submission said.
“It is clear that ensuring better compliance with SG obligations and enforcement of non-compliance will significantly improve the outcomes intended by the SG but also reduce the impacts of insolvent businesses, creditors and the Australian economy generally.”
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