Director Penalty Notice … Even if the Company is deregistered!

The ATO has stepped up the number of Director Penalty Notices being issued to directors of companies with ATO debts.

What is a DPN?

The ATO uses Director Penalty Notices (DPNs) as part of its recovery process.

A DPN is a notice sent by the Australian Tax Office (ATO) that can make a director personally liable for company ATO debts if not complied with. The debts that the director may be personally liable for include Pay As You Go (PAYG), Superannuation Guarantee Charge (SGC) liabilities, and Goods and services tax (GST).

There are two types of DPN’s and it is important to know the difference between them:

A standard or non-lockdown DPN is issued when a company has lodged their GST/PAYGW or SGC returns with the ATO, in the required timeframes, but has not yet paid the amounts owing.

Directors who have been issued with a non-lockdown DPN have a period of 21 days to either pay the debt, or place the company into external administration to cancel their personal liability.

A lockdown DPN is issued when the company has not lodged their GST/PAYGW or SGC returns within the required timeframe or paid the amounts owed. 

If a lockdown DPN has been issued, there are no options for the director to cancel the penalty other than to pay the debt in full.  Placing the company into external administration will NOT cancel the personal liability.

The ATO’s renewed focus on debt recovery has seen them issuing 120 Director Penalty Notices per day – a daily rate that has risen fourfold since mid-May – and over 7,000 DPNs have been issued since April 2022. 

What can you do?

Prevention is your first step and it goes without saying that payment of any ATO debts on-time is always in your best interests.   

It is also imperative that taxation liabilities continue to be reported on time even if you are unable to pay the amount outstanding.  If you are unable to pay you should then engage with the ATO to explain your circumstances as a matter of priority – your accountant will be able to help you with these discussions.

After entering into discussions, the ATO may agree to a payment plan that allows the debt to be paid over a period of time.

By ensuring you comply with your relevant reporting obligations, you can at least avoid being issued with a lockdown DPN which leaves you no other option but to pay the debts personally.

If you do receive a non-lock down DPN, your options will be detailed in the notice. To have the debt remitted (which means you are no longer personally liable for the debt) you will generally have four options:

1.         Pay the debt;

2.         Appoint a Liquidator;

3.         Appoint a Voluntary Adminstrator; or

4.         Appoint a Small Business Restructuring Practitioner

A commonly held misconception is that entering into a payment arrangement will result in the debt being remitted, however this is not the case. If you enter into a payment arrangement after receiving a DPN, you may avoid further recovery action being taken but you will not avoid personal liability. Effectively any payment arrangement would be between you as director, and the ATO.

What about when the company is deregistered?

We are also seeing DPN’s being issued when a company has been deregistered. 

As an example, Smith Hancock recently managed a liquidation involving a gym that had ceased trading around 5 years ago.  In this particular case:

• The gym was deregistered by ASIC in October 2020 due to unpaid ASIC annual review fees.
• A DPN was received in March 2024 for ATO debts of circa $350,000 (PAYG and superannuation). The director was also unable to repay the debt.
• As the Company was deregistered at the time of receiving the DPN, the director was unable to appoint a liquidator, voluntary administrator or small business restructuring practitioner.
• With only days left to deal with the DPN, the Director’s solicitor made an urgent application to the Supreme Court of NSW seeking to have the company reinstated and placed into liquidation before expiry of the DPN.
• On 25 March 2024, the Court ordered that ASIC reinstate the Company’s registration and that on reinstatement of the Company’s registration, the Company be wound up and Rommel Alfonso be appointed as Liquidator, effective as at the date of the Order.
• The actions resulted in the DPN of $350,000 being remitted.

If you have any doubts about your company’s ability to pay its outstanding liabilities, you need to seek immediate advice from an accountant or insolvency practitioner.  There are strict timelines and regulations surrounding DPNs and it is critical that you have an expert on hand to provide advice sooner rather than later.  Acting quickly can protect you from being held personally liable.

If your business is struggling to meet tax and superannuation obligations, our experienced practitioners can discuss the options you have available to you and how best to proceed. 

For further information call us today on 02 9689 2266 for a confidential discussion.