Around 50,000 Director Penalty Notices (DPN) have been issued by the ATO to directors of companies having overdue tax payments.

The issuing of a DPN is a procedural step only required of the ATO before it can commence proceedings against the director to recover penalties which have already accrued.

Non-lockdown DPN

If a company has made timely reporting of its obligations (even if it has not paid them), the ATO will send what is called a ‘non-lockdown’ DPN.

This requires the company to have lodged its business activity statements (BAS) and instalment activity statements (IAS) within three months after the due date for lodgment, and its SGC statements within one month and 28 days after the end of the quarter to which the unpaid superannuation contributions relate.

A non-lockdown DPN gives the director the option of complying with the notice by appointing a voluntary administrator (VA), a small business restructuring practitioner (SBRP) or a liquidator within 21 days after the date on which the DPN was sent. Any penalty is then remitted (waived) by the ATO.

Critically, the period of 21 days to comply with a DPN cannot be extended. Any director receiving a DPN should immediately seek advice from an appropriately qualified professional. Appointing a VA, SBRP or liquidator on the 22nd day will be too late for the director to escape personal liability.

Lockdown DPN

In the situation where a company has failed to report its obligations, the ATO will serve a lockdown DPN. If this happens, the director must comply with the notice and pay (or cause the company to pay) the penalty amounts within the 21-day period.

The ATO has advised proceedings will not proceed while there is an instalment arrangement in place and followed. There are only a limited number of defences which a director may be able to raise to avoid liability for failing to comply with a DPN.

The receipt of a DPN carries profound and time-critical consequences. It is strongly recommended that a director receiving a DPN immediately seeks legal advice, including specialist insolvency advice.

We’re ready to help. Contact our Business Recovery & Insolvency specialists on +61 3 9820 6400.

This is not advice. You should not act solely on the basis of the material contained in this post. These are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of these areas.