One of the most common businesses with financial problems we see are restaurant and hospitality businesses.  This is because often they have high staff wage costs, high rent and their revenue can fluctuate based on various factors.

This article looks at risks for directors of restaurant businesses with large tax (or really any type) of debt and what those businesses can do.

What are the risks

There are two common types of risks for directors of restaurant business, which are:

• Risks associated with personal guarantees; and
• Risks of liabilities for director penalty amounts.

It is very common in the hospitality industry for directors to have to sign personal guarantees for things like, a premises lease, general loan or finance agreements, equipment finance and suppliers.  If you sign a personal guarantee and your business fails, you will have to pay the amount owed to the person you have signed the guarantee for.  In respect of premises lease debts, a guarantee will also generally cover future rent for the period of the lease, which can total a significant amount (although the landlord has to seek to re-let a premises).  Therefore, personal guarantees are a major problem for business owners in the restaurant and hospitality industry.

We have set out how company directors can be liable for Director penalty notice amounts previously.  But in summary the ATO can make directors liable for unpaid PAYG Tax, GST and superannuation.  So for restaurant businesses not paying these debts, there is a risk for directors of personal liability.

What can you do to minimise the risks?

Firstly, be careful what you sign, and where possible don’t sign personal guarantees.  For example, a landlord might be ok with a bond or bank guarantee for a number of months rent rather than a personal guarantee.  And while it may be difficult to pay or arrange a bond or bank guarantee initially it can save there being personal financial risks in the future.

In regard to ATO debts and risks for director penalty liability, then, we suggest:

• Keeping on top of tax payments and if unable to pay when due negotiating a payment arrangement.
• Making sure lodgements are made on time (including for unpaid super if not paid) so as to avoid the risk of lockdown director penalty claims.
• If taxation debts are looking like becoming unmanageable get advice from a professional as soon as possible.

Contact us for assistance

The above article only summarises some of the risks for restaurant businesses and some suggested solicitors.  And if you trade in this industry there are many ore issues you may encounter.  So, if your business is having difficulties paying its tax debts or has other general financial problems, the professionals at TAX DEBT SOLVED can help with a free, no-obligation consultation.