24 September 2025
Business leaders face a host of challenges along their journey. While many are known, others can raise their head as the business landscape changes. Accordingly, the recent ATO crackdowns have seen SME owners face more scrutiny to be on top of their legal obligations and financial responsibilities.
“Directors are under more pressure than ever,” states AR & B Advisors Principal, Toby Redman, “which equates to more risk.” It can feel like something of a balancing act: directors need to juggle the challenges of running a business, while also actively managing their financial responsibilities.
What happened?
The post-COVID years saw a more lenient ATO, one that worked with businesses to help them manage their obligations during the uncertain times following the pandemic. In more recent times, however, their approach has shifted.
“It’s an effective reversal of how they operated,” Toby cautions. “The ATO is now firmly in collection mode and directors are under more pressure than ever.”
The key challenges directors need to be aware of:
Financial obligations
Directors have always been personally exposed through guarantees on bank accounts, loans, overdrafts and supplier terms. What’s changed is that the ATO has now joined the action, taking a far more aggressive stance in pursuing directors when businesses can’t meet their commitments or pay their debts.
The catch is that while liability is shared across all directors, it doesn’t necessarily fall equally across all directors.
“It’s not a matter of apportioning debts equally. The ATO will often seek to take the path of least resistance to recover what’s owed,” Toby states. Property and asset searches will be carried out, financial records examined, and investigations undertaken to build a case to recover the debt.
The ATO’s primary tool for recovering debts is the Director Penalty Notice, the use of which has increased significantly in recent years. This makes it more important than ever for directors to stay ahead of their business obligations.
“Lodging on time certainly helps, even if you can’t pay on time,” Toby notes. “While you’ll then have to pay interest, it demonstrates to the ATO that you’re meeting your lodgement obligations and acting responsibly.”
Facing insolvency
When a company continues to trade while insolvent, the directors become personally liable for the company’s debts.
Each case is unique and highly subjective. An external insolvency practitioner, such as a liquidator or accountant, may be appointed to assess whether a company was trading while insolvent. They typically review indicators to determine whether the directors’ incurred debts or financial obligations that they knew, or should have known, the company would be unable to pay as they became due.
Alarmingly, directors can find themselves in this situation more easily than expected, whether due to external pressures or decisions within their own control.
There are many reasons this can occur. In rare cases, it may stem from questionable choices from directors, such as taking out a loan in the company’s name for personal reasons. More commonly, it arises from genuine business obligations: a director may take courageous steps to keep the company afloat, only for those commitments to fall short.
Keeping on top of a business’ debt is vital for a director, otherwise they’re in the firing line.
Employee superannuation
As with some ATO debts, directors can be made personally liable for unpaid superannuation for their employees.
“Super is a big one,” Toby explains. “Due to the new reporting requirements for superannuation, the ATO can determine very easily if an employer is behind on their payments. This is an easy way to get on the ATO’s radar and could open the door to all sorts of ATO scrutiny.”
A common trap occurs during employee onboarding. Employers must request super fund details from new staff, but if none are provided, the responsibility falls back on the business to set up a default fund. Overlooking this step can quickly lead to ATO complications.
With the right support, it doesn’t have to be a balancing act
As a director, these challenges can be daunting. The key is getting the right advice and support. “Our role is to help businesses stay profitable and manage cashflow effectively,” says Toby. “Profitability is important, but without healthy cashflow, it’s difficult to meet obligations on time. When a business operates ethically and stays on top of its debts, directors have little to worry about.”
A good business advisor acts like a virtual board for strategic planning, helping SME directors stay focused and on course. They partner with the business to prepare and interpret financial reports, manage cashflow, provide regular updates with clear targets and KPIs.
Beyond the numbers, they offer guidance on key decisions to keep the business informed and on track, while also working with directors to structure personal assets and safeguard them against risk.
At AR & B Advisors, we support SME directors with the advice and guidance needed to bring clarity and control to financial responsibilities to help you lead with confidence. Get in touch with us today to learn more.