A reminder for directors that it is important to act at the first sign of financial difficulty
A recent decision of the County Court of Victoria provides an important reminder for accountants and directors facing financial difficulties: it is important that insolvency advice is obtained at the first indication that a company may be unable to pay its debts as and when they fall due.
When the position has become critical, it is often too late.
In Deputy Commissioner of Taxation v Wang [2026] VCC 1523, the Court considered the statutory defences available to a director facing personal liability for substantial company tax debts under the Director Penalty Notice regime.
The decision highlights an important distinction for directors of distressed businesses: efforts to improve a company's performance and preserve its business are not the same as taking the necessary steps to address its tax liabilities. Understanding this distinction is critical to protecting directors from personal liability for company tax debts.
A director may genuinely believe that a business can be rescued and undertake reasonable steps to improve the position, including seeking additional finance, negotiating with creditors, reducing costs and pursuing new opportunities. Those efforts may be entirely genuine.
However, the relevant question under Division 269 of the Taxation Administration Act 1953 (Cth) is whether the director took the reasonable steps required to ensure the company's relevant tax liabilities were paid or, where they could not be paid, whether appropriate insolvency or restructuring action was taken.
Timing is therefore critical.
When to seek advice from an insolvency practitioner
Once a company is experiencing difficulty paying its debts, continuing to trade in the hope that circumstances will improve can have serious consequences for directors personally. Waiting until a Director Penalty Notice is received often means that significant liabilities have already accumulated and options to address the situation may have been lost.
For accountants, this is an important consideration when advising clients with increasing ATO arrears, unpaid employee entitlements, overdue creditors or persistent cash-flow difficulties.
Directors should be aware that the critical issue is not simply whether the business can be saved, but whether the company can pay its debts as and when they fall due and, if not, what steps should be taken now.
Conclusion
Obtaining insolvency advice does not necessarily mean that a company should be placed into liquidation. It means that the available restructuring or insolvency options and the directors' potential personal exposure can be properly considered while there are still options available.
The earlier that advice is obtained, the more effectively directors can understand and manage the risks associated with continuing to trade.
See: Commissioner of Taxation v Wang [2026] VCC 1523 (18 September 2026).
This article is intended as general information only and does not constitute legal, taxation or insolvency advice.
