How a garnishee order can affect your company

There has been a growing consciousness in compliance management around the globe due to the realisation of the impactful nature it has on the overall performance of an organisation. One of the main reasons why companies should ensure that their compliance obligations are fulfilled is the need to avoid worst consequential scenarios such as penalties and legal actions from being instituted against them. The Tax Administrators can take legal routes to recover revenue from non-compliant companies, one such pathway is a garnishee order. This write up seek to understand the meaning of garnishee orders and how they impact an organisation.

What are garnishee orders?

A garnishee order is an instruction to your bank by the Tax Administrators to transfer any funds directly from your account to the Tax Authority to settle the tax debt. This means that if you have outstanding taxes the Tax administrators can bypass you and retrieve the funds straight from your bank. This is used as the last resort in revenue collection, it can create operational, financial, and legal challenges for the company. A garnishee order affects the company financially, operationally and legally.

When a company is ordered to garnish the wages of one of its employees or to freeze a bank account in which it holds the debtor’s funds, it may face several financial consequences which include cash flow and liquidity issues. A company with limited cash flow, being required to withhold or release funds to satisfy a garnishee order can affect its immediate liquidity. For example, if the garnishee order targets bank accounts, the company may need to freeze a portion of the debtor’s funds, which can disrupt the company’s ability to access or use that money for its own operational needs.

The financial negative implications can be because of legal liabilities for non-compliance which have devastating effects on the organisation’s cost management system. Failure to comply with a garnishee order can expose the company to legal risks. If the company does not withhold or transfer the specified funds in accordance with the order, it may face consequences such as contempt of court. The company could be held in contempt of court and face penalties, including fines or other sanctions.  In some cases, if the company fails to comply, it may become liable for the full debt if the debtor’s funds cannot be recovered through the garnishee process.

To be continued…………………………………………..

There are several ways that a company can be adversely affected by garnishee orders, join us in our next article as we share more on the topic.

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