It is a common misunderstanding that directors are not personally liable in respect of the company’s liability for Pay As You Go (PAYG) withholding payments, GST payments and superannuation obligations.  In fact, directors are automatically liable as at the same date the company is due to pay those obligations.

However, before the ATO can take proceedings making the directors personally liable, it first issues a Director’s Penalty Notice (DPN).  The DPN has 2 purposes:

• The ATO cannot bring recovery proceedings against the director personally until 21 days after it is issued a DPN and it has not been complied with. 
• The director can remit i.e. cancel their personal liability by taking certain actions within 21 days of the DPN being issued.  This is discussed below. 

There are two types of DPN:

• Non lockdown
• Lockdown

Non-Lockdown Director Penalty Notice

The DPN will be issued before a non-lockdown director penalty where the relevant obligations referred to above are unpaid and the company has reported the debt to the ATO within particular time limits for PAYG and superannuation payments.  For PAYG withholding and GST, this must be within 3 months of the due date of lodgement of the BAS statements and instalment activity statements.  For superannuation, by the due date for lodgement of the superannuation guarantee charge statement, being 1 month and 28 days after the end of the relevant quarter. 

To remit, i.e., cancel the personal liability director for a non-lockdown DPN, a director must within 21 days from the date of the notice, take one or more actions:

• Pay the debt.
• Appoint a voluntary administrator for the company.
• Appoint a small business restructuring practitioner for the company.
• Appoint a liquidator (the company needs to be wound up).

If the director (or directors) fails to do one of these things within 21 days of the DPN being issued, the penalty against the director or directors permanently locks down on the director and the ATO can commence proceedings to recover the debt. 

It is also to be noted that a defence to the DPN can be that if, within 21 days, the director can prove their incapacity to manage the company due to health issues at the time that the company was required to provide payment of any of the above obligations.

Lock Down Director Penalty

A DPN will be issued for a lock down director penalty where the relevant obligations are unpaid and the company has failed to report the debt to the ATO within the time frames stipulated above.

The importance of Director’s personal address being up to date

As can be seen from the above, the personal liability can accrue after 21 days after service of the notice.  The ATO are obliged to send the notice to the director’s personal address as registered with ASIC.  Accordingly, if the director’s address has changed, they are still deemed to be served by having been served at the registered address even if it did not come to the attention of the director.

It is therefore of paramount importance that if a director changes their address, that they immediately notify ASIC of that change.

The consequence of being issued a lock down DPN is that the only way to remit i.e. cancel the penalty, is to pay the debt in full.  This liability will still persist even if the company is placed into liquidation, administration or is undergoing a small business restructuring.

RMO Law can advise you on the steps to take if a DPN is issued to you personally as a director.  During the relatively short time period to respond, it is important that you seek regular advice as quickly as possible after receiving the DPN.

Contact Us

If you have questions in relation to Director Penalty Notices, contact us to book an initial consultation with one of our experienced lawyers, and we will provide you with tailored advice with respect to your unique circumstances. call 1800 957 936, email mail@rmolaw.com.au or submit an enquiry on our website.

We are available to meet with you at any of our local offices (Brisbane, Gold Coast, Beenleigh, Cleveland and Jimboomba) or by telephone or video-conference.

This article is for your information and interest only. It is not intended to be comprehensive, and it does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.

Roly O’Regan

Director