A powerful tool to control personal exposure, protect the family home, and deal with ATO enforcement, before it's too late.
The numbers don’t lie, the ATO is on the move. In FY24 alone, the ATO issued 26,702 Director Penalty Notices (DPNs), covering over $4.4 billion in unpaid company tax and superannuation. That's a 53% jump from FY23. The ATO has recovered $879 million through these notices.
DPNs are personal liabilities. Once they lapse, directors are personally liable for the debt. We have seen the ATO relying on garnishee notices and tax credit offsets to recover these personal liabilities. But with billions still outstanding, there’s little doubt that legal action and bankruptcy proceedings will become the next wave of ATO enforcement.
That’s why Part X agreements are coming into sharper focus. Formally known as Personal Insolvency Agreements, these arrangements allow individuals to propose a structured, binding deal to creditors, including the ATO, without triggering the full consequences of bankruptcy.
They are, in many ways, the Small Business Restructure (SBR) equivalent for individuals. A formal pathway to manage personal exposure, protect valuable assets, and resolve legacy debts before enforcement action hits.
Why Part X and why now?
ATO’s current interest rate of 10.78% p.a. means that this DPN personal liability is growing fast, eating into directors’ asset values, every single day. Commonly, the most treasured asset is the cherished family home, which would be available to be sold in bankruptcy.
Ongoing delays increase the size of the liability and make it harder to put forward an offer that ATO and other creditors will accept. As property values rise and interest on DPNs accrues, creditor expectations increase. Left unaddressed, the creditor gets the benefit of the capital growth from these assets.
Bankruptcy can have adverse consequences, including the family home having to be sold or an impact on income earning capacity through loss of licence or registration. In the right circumstances, a Part X can reduce this downside risk.
It allows individuals to contribute certain assets, finance against these assets, offer cash (lump sum or over time) or third-party funding to settle debts and retain control over their financial future, without the restrictions and fall out that may come with bankruptcy. It also allows individuals to draw a line in the sand and put the stress, uncertainty, and sleepless nights behind them.
Beware of dodgy advisers
In this climate, it's critical that directors receive regulated, lawful advice. Unfortunately, we are seeing a rise in unqualified operators offering misleading guarantees or encouraging vulnerable individuals to transfer assets to avoid paying expired DPNs and other creditors. These strategies are not only unethical, but they are also risky. Bankruptcy trustees have powerful clawback tools, and individuals find themselves in deeper trouble down the track.
If it sounds too good to be true, it probably is.
ARITA has published a clear warning on dodgy insolvency advisers, including signs to watch for and why regulated professionals are essential. Read the full article here
Working with ARITA members, like Worrells, ensures clients receive sound advice, backed by ethical and legal standards.
Part X provides a clear, legal pathway forward. It allows directors to protect the family home, resolve expired DPNs, and avoid the full fallout of bankruptcy. With ATO enforcement ramping up and personal liability growing the best time to act is now.
Throughout August, Worrells will be hosting seminars across 56 locations around Australia, focusing on this critical topic. Click here to register for your local event and stay ahead of the wave.
Let’s help clients take control before the ATO takes it from them.
Read more about Part X Agreements:
.jpg?auto=format,compress&cs=tinysrgb&fit=crop&crop=focalpoint&fp-x=0.50&fp-y=0.50&fp-y=0.1&w=800&h=480&q=25&blur=5&sat=-100)
