Among the 61 recommendations of the Report of the Parliamentary Joint Committee (PJC) on Corporations and Financial Services – Financial abuse: an insidious form of domestic violence of December 2024 are those concerning corporations and tax liabilities imposed on the ‘victims’ of financial abuse, and bankruptcy and family law issues. Financial Services Regulatory Framework in Relation to Financial Abuse – Parliament of Australia
I covered some of these in my 1 October 2024 comment without necessarily concluding as to the outcome Coercive control and insolvency – Murrays Legal
Corporate liabilities
The PJC has now recommended [55] that the government amend the Corporations Act to ensure that the company director provisions appropriately recognise family and domestic violence, including financial abuse, as a reason why a director may be regarded as not in fact managing a company. For example, that section 588H(4) of the Corporations Act, the defence to insolvent trading, be amended to specifically recognise family and domestic violence as a reason why a director “did not take part at that time in the management of the company”.
Tax, and DPNs
As to tax liabilities, recommendation 56 is that the 21 day time period be extended to allow a victim to respond to a Director Penalty Notice (DPN) in cases of reasonable claims of financial abuse. At 5.54, the Report refers to DPNs as presenting a “particularly troubling issue” because they require a director to provide full payment of company tax debts (or to liquidate the company) within 21 days to avoid personal liability. This said to leave many victim-survivors at the risk of bankruptcy for tax liabilities of a company they did not control.
The short 21-day timeframe was
“particularly difficult in cases where the receipt of the DPN is the first time a victim-survivor is even made aware of their status as a company director”.
The committee therefore recommended that the 21 day limit needs to be extended to allow victim-survivors appropriate time to seek advice and submit a defence to a DPN in cases where financial abuse or domestic violence or coercion may be involved.
One submission recommended that the ATO consider a policy response that allows it to only pursue the perpetrator (in their capacity as a shadow or de facto director), provided there is sufficient evidence of the perpetrator’s control over the company.
It also recommended that the government develop a tax relief model for victim survivors of financial abuse similar to the United States IRS ‘innocent spouse relief’ provisions, for example that the person was the victim of spousal abuse or domestic violence before signing the return, they didn’t challenge the items on the return because of fear and that they signed the joint return because they were pressured or threatened: Innocent spouse relief | Internal Revenue Service
Trusts
Trusts were also in focus, recommendation 57 being that the government undertake a review of current legislative and regulatory settings relating to trusts, with a view to addressing the abuse and misuse of trusts as a mechanism for financial abuse and coercive control.
At [5.118], evidence received by the committee that perpetrators are committing financial abuse by making the victim-survivor the co-director or sole director of a company, while denying them any decision-making power and access to financial information. By doing so,
“perpetrators can protect themselves from bankruptcy by pushing the liability on the victim-survivor. While individuals can submit a defence in relation to disputed directorships, the committee heard that financial abuse, and family and domestic violence more broadly, are not recognised as a basis for accepting that a person was not in fact a director managing a company”.
Director identity regime
ASIC reported on the Director Identification Regime, which requires new and existing directors to apply for a director identification number (director ID) before being appointed to a company. However it was said that perpetrators may still pressure or coerce victim-survivors to log on to myGov or create a director ID, or may use the spouse’s ID documents to set up a myGov account or director ID. ASIC advised however that where it becomes apparent that a director has been appointed without consent, it is able to remove the person as a director from the company register; ASIC does not generally take the role of arbiter in company disputes about officeholders.
Bankruptcy and family law
As to bankruptcy and family law, it is said that victim survivors are often forced into bankruptcy as a result of financial abuse, and this not only compounds the impact of financial abuse, but it also advantages the perpetrator in their family law proceedings.
For example, a bankrupt victim-survivor of financial abuse is unable to seek orders relating the property that has vested in the trustee. However,
“the perpetrator is still able to seek an order for a property settlement and request that they be prioritised over the creditor[s], because a non-bankrupt spouse can seek an interest in property that has vested in the trustee, even where their conduct has contributed to the forced bankruptcy”.
While the interaction between the Bankruptcy Act and the Family Law Act is intended to protect the non-bankrupt spouse,
“perpetrators of family violence often exploit the system to the detriment of the victim-survivor who is left bankrupt, has no standing in family law proceedings, and often loses their home, while the perpetrator is able to seek priority over the property vested in the trustee”.
A submission was therefore made that the Family Law Act be amended to allow a victim survivor who is made bankrupt because of financial abuse to have standing to seek orders in relation to vested bankruptcy property.
Bankruptcy itself
As to bankruptcy itself, the Report refers to “unique risks associated with bankruptcy”, with “individuals being presented with documents to sign without fully understanding the long-term implications” of bankruptcy’s impact on future family law matters.
A submission was made that there be mandatory legal advice for debtors before signing bankruptcy documents; enhanced notification on bankruptcy documents about the potential impacts on family law proceedings and financial arrangements; a cooling-off period to “reflect on the documents”; and access to support services that offer financial counselling and legal support.
AFSA did not appear before the Committee.
Comment
As I mentioned in my 1 October 2024 comment, law reform that seeks to balance issues of domestic coercion and directors’ corporate and tax duties might be difficult, with each body of law having differing interests to protect. This is not unlike the tension between family law and its focus on spouses and children, and bankruptcy with its focus on creditors, each also now the subject of recommendations in this report. There is also the criminal law, coercive control, as defined, now being a criminal offence in NSW: Coercive control and the law | NSW Government
Also, these particular recommendations pre-empt those of the 2023 PJC Report on Corporate Insolvency, which, among other things, called for any comprehensive review of insolvency to consider and make recommendations on options to enhance public interest objectives and the effectiveness of, and interaction between, the personal and corporate insolvency systems. The government is still yet to respond to that 2023 report.
As to the 61 recommendations themselves, passing laws and introducing policies may help, although these would be better directed by some focus and analysis being given to the underlying reasons for this type of abuse.
