Gaol Time for Delinquent Company Directors / PPSR Update

Robert Kite

02 Apr 2019

It’s Gaol Time for Delinquent Company Directors

There have been a number of cases determined in the last 6 months regarding the conduct of company directors, which has ultimately resulted in those parties receiving custodial sentences. In each of the scenarios, the investigations of the Australian Taxation Office (“ATO”) have found that the directors engaged in activity to falsely claim refunds for GST, and / or, failed to report and remit the GST and PAYG Withholdings to the ATO.

These recent convictions send a very clear message on behalf of the ATO to those who may set out to defraud them.

A summary of these recent convictions are provided below:

Mr Sung Jae Cho was convicted of 20 charges for, amongst other things, obtaining a financial advantage by deception through illegal phoenix activity.

Mr Cho operated labour hire businesses through a number of different companies. The companies failed to report and remit their GST and PAYG Withholding liabilities to the ATO.
Mr Cho arranged to liquidate his companies without paying the debts accumulated to the ATO. Then continued to conduct the business via a new corporate entity. This conduct represents illegal phoenix activity.
The losses suffered by the ATO exceeded $890,000. Mr Cho was convicted and sentenced to 5 years and 4 months gaol, and he was also ordered to repay the money.

Mr Benjamin Ensor was convicted on charges of fraud relating to the conduct of 9 companies of which he was a director.

Mr Ensor lodged fraudulent BAS documents in relation to 9 companies and claimed more than $2 million in GST refunds. He also failed to report the sale of a number of residential apartments, which carried a liability for GST of more than $1.5 million. Mr Ensor’s conduct caused a loss of approximately $3.5 million to the Commonwealth.
As a result of his conviction, Mr Ensor was sentenced to 6 years gaol. He was also ordered to repay more than $1.8 million.

Mr David Latemore was convicted of GST fraud whereby he had obtained in excess of $138,000 in GST refunds, and he was seeking to obtain a further sum of approximately $962,000 in GST refunds.

Mr Latemore stated that he had a motor vehicle and yacht business. Following an audit by the ATO, it was found that the company had no commercial business activity, did not make any sales or purchases and had no entitlement to claim the refunds obtained. The Court held that the claims were fraudulent, and that Mr Latemore had also supplied false documents to the ATO in support of the claims for GST refunds.
As a result of his conviction, Mr Latemore was sentenced to 30 months gaol, and was ordered to pay more than $130,000 to the ATO.

Mr Jeffrey Harrison was convicted of charges relating to tax fraud for claims made in BAS documents lodged by his company between 2009 and 2015.

Mr Harrison lodged his BAS in which more than $1 million was claimed in GST refunds. Upon the ATO’s review of the matter, it appeared that the company had no commercial business activity.
The Court found the GST refunds obtained were fraudulent. As result of his conviction, Mr Harrison was sentenced to 4 years 2 months gaol. He was also ordered to repay more than $880,000 to the ATO.

In sending a message to the community, comments made by an ATO spokesperson in relation to one of the above convictions were “we welcome the jail sentence handed down & the warning it sends to others considering engaging in similar behavior. If you break the law, we will hold you accountable even if it means pursuing you in the courts”.

There is increasing scrutiny by various government agencies on behaviours that results in loss of revenue to taxation authorities. If you have a client that is struggling in meeting their taxation obligations, please call us for a no obligation consultation to discuss the alternatives available to them.

Are your Security Interests on the PPSR due to Expire?

The Personal Property Securities Act 2009 (Cth) (PPSA) commenced on 30 January 2012. The PPSA saw the implementation of the Personal Property Securities Register (PPSR), a national online register recording the interest of individuals and/or corporations against goods or assets. The seventh anniversary of the PPSR passed on 30 January 2019. This date had a significant impact on a number of registrations. But why is this so?

The reason is that pursuant to Section 153(1) of the PPSA, the registration period for security interests for consumer property, or property described by a serial number, is a maximum of seven years.

Unless these registrations are renewed prior to their 7 year anniversary (or earlier subject to the end time noted on the registration), the registration automatically expires.

Consequently, if not renewed a large volume of security interest registrations were due for automatic expiry, commencing from 30 January 2019.

Automatic expiry of a registration means that the registration cannot be renewed and a new security interest must be registered on the PPSR. The impact of an expiring registration may include the loss of protection over the secured party’s interest in the personal property afforded under the PPSA and the Corporations Act 2001 (Cth), and/or the alteration in the order of priority for security interests in the event of a new registration.

To demonstrate the significant impact of the automatic expiry of registrations on the PPSR, the table below sets out the volume of registrations due to expire for the first half of 2019.

Month	Registrations due to expire
January 2019	115,239
February 2019	73,912
March 2019	40,495
April 2019	35,487
May 2019	41,947
June 2019	48,286

*The above statistics have been obtained from a release by the Australian Financial Security Authority on 6 November 2018.

To ensure protection of security interests it is imperative that you implore your clients to renew their current registrations prior to the registration end date, or if the registration has expired, urgently complete a new registration.

To be continued in our next newsletter.