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What is the impact on my personal assets as a director if my company is insolvent?

What is the impact on my personal assets as a director if my company is insolvent?
 
It is a common misconception that if you are a company director and fail to pay the company’s debts when they are due, your personal assets will not be impacted or seized when the company becomes insolvent.
 
The assets that may be impacted are:
 
1. The family home
The family home may be one of the first assets that is used to pay outstanding debts. Given that median property value ranges from $386,345 in Hobart to $872,934 in Sydney, the house is likely to be a highly valuable asset that you need to retain ownership of.
 
2. Your motor vehicle
The motor vehicle may also be used to resolve your unpaid debts. However, the Australian Financial Security Authority (AFSA) mandates that if your equity ownership of the vehicle is valued at $7,600 or less, it can be kept.
 
3. Your inheritance
Your inheritance may be claimed by a trustee if your company becomes insolvent under certain circumstances. For example, if you are unable to perform your duties as a director or the company’s assets cannot cover its debts, then the deceased estates you inherit during or before insolvency can be used to pay the debt. This also applies to your winnings from the lottery and investments in your business.
 
4. Your income
If you earn above a certain threshold, your trustee can claim some of your income. The threshold increases based on the number of dependents you have, ranging from $54,518.10 if you have no dependents to $74,144.62 if you have more than four dependents.
 
5. Sentimental property
AFSA has listed ‘sentimental property’ as an asset which a trustee can claim. This includes family heirlooms, jewellery, or even books and other household items, as long as it has significant value. Your trustee will make the decision as to whether these assets will be used to pay off your debts.
 
In addition, you may also lose your superannuation benefits, any plant and equipment you own and funds which are owed to you. Protecting a company’s assets and structuring the business in a way that ensures it can pay off its outstanding debts is critical.
 
If you would like to learn more about corporate insolvency and how to prevent your assets from becoming collateral damage, please speak to ISA for free and confidential advice on our 24/7 toll-free hotline on 1800 003 883.

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