What is a Director Penalty Notice?
A Director Penalty Notice (DPN) is a notice issued by the Australian Tax Office when a company fails to meet its obligations in paying debts Pay As You Go (PAYG), Superannuation Guarantee Charge (SGC), Goods and Services Tax (GST), Wine Equalisation Tax (WET), and Luxury Car Tax (LCT) debt.
Under the director penalty regime, these particular ATO debts are not necessarily extinguished by placing the company into liquidation or voluntary administration, and instead the director can be held personally liable.
A DPN is significant because it allows the ATO to break through company red tape and pursue directors personally for underreporting, significant unpaid ATO debt and suspicious phoenix activity.
Upon receiving a DPN, the director becomes individually and separately liable for the full amount of the penalty. If a director receives a DPN, it requires the director to take one of four specific actions within 21 days of issue, or the director will be personally liable for the debt:
- Pay the debt in full.
- Enter into an instalment arrangement to repay the debt.
- Appoint a Voluntary Administrator.
- Appoint a Liquidator.
Two types of DPN
Upon receiving a DPN, the director is required to take one of the following four specific actions within 21 days of issue, or the director will be personally liable for the debt:
- Pay the debt in full;
- Enter into an instalment arrangement to repay the debt;
- Appoint a Voluntary Administrator; or
- Appoint a Liquidator.
However, it is important to read the DPN carefully as the ATO may issue a ‘lockdown’ DPN‘, which simply makes the director immediately personally liable irrespective of whether they take actions 2, 3 or 4 above. In respect to PAYG, GST and SGC debts, a lockdown DPN can be issued by the ATO if a company’s activity statement lodgements become more than three months’ overdue and/or SGC statements are lodged later than one month and 28 days after the end of quarter.
It is important, then, that if your company cannot pay its ATO debts as and when they fall due, at least ensure your reporting to the ATO stays up to date and contact us to obtain information about placing your company into either liquidation or voluntary administration.
If you receive an DPN, it is important to act quickly. The timeframe for action in response to a DPN is tight, so you should seek out expert advice from an insolvency practitioner, like a registered liquidator, as soon as possible.
Defending against a Director Penalty Notice
You may also be protected from a DPN if your company took reasonable care in applying the law in respect to the superannuation guarantee charge.
If you wish to challenge a DPN, it is important to seek out personal legal advice tailored to your circumstance.