Access Law Group

Director Penalty Notice

By Lindsay N/A
Director Penalty Notice

RECEIVED A DIRECTOR PENALTY NOTICE?

 

As a director, or a former director, of a company in Australia, it is crucial to understand the implications and responsibilities associated with Director Penalty Notices (DPNs) issued by the Australian Taxation Office (ATO). 

Recent statistics reveal a stark reality – the ATO has issued 10s of thousands of DPNs this financial year alone. This staggering number underscores the importance of understanding these notices and taking proactive measures to address them effectively.

 

 What is a Director Penalty Notice (DPN)?

A DPN is a notice from the ATO that can hold directors personally liable for three types of debts: Pay As You Go (PAYG), Superannuation Guarantee Charge liabilities, and Goods and Services Tax (GST). This is because a director of a company has a legal responsibility to ensure the company meets its corporate governance obligations by remitting these amounts when they are due. 

 

There are two (2) types of DPN:

  1.    21 Day DPN: This DPN gives a director 21 days to take certain actions to avoid personal liability for the debt. Importantly, the 21-day timeframe starts from the notice date, not the receipt date. In response, the director can cause the company to pay the debt, or put the company into external administration, (such as administration or liquidation.) A failure to do either of these things within 21 days means the director becomes personally liable for the debt
  2.   Lockdown DPN: These are issued when a director fails to cause the company to lodge the business activity statements (BAS) within 3 months of their due date. For these, the director is automatically personally liable. There is little room to avoid such personal liability. 

 

Unlike state-level liabilities, Commonwealth liabilities, including taxation debts, have no statutory time limit. The ATO can pursue the tax debts indefinitely.

The ATO can still issue a DPN to a former director if their company is liquidated or deregistered because the former director personally owes the debt from that prior time. The personal debt survives the liquidation or deregistration of the company.

 

 

Defences to a DPN

There are two (2) defences available to avoid liability under a DPN, namely:

  1.   Due to illness or for some other good reason, it would have been unreasonable to expect the director to take part, and the director did not take part, in the management of the company when they were the director.
  2. The director ensured that the company complied with its obligations, appointed an administrator, appointed a small business restructuring practitioner, or began winding up the company, unless no reasonable steps were available.

 

 

Effect of a DPN on You

It is important to note that a DPN can affect the director’s ATO portal, and subsequently influence their capacity to borrow or re-finance.

Often, the ATO will sit on the debt, and pay it down using the director’s personal tax returns when they are available. In reality, the repayment from personal tax returns might not be enough to off set the interest and penalties on not paying the debt, meaning that the debt becomes bigger, not smaller.

Sometimes, a personal insolvency solution needs to be considered to wipe out the debt with as little damage as possible.

 

The seriousness of DPN’s necessitate proactive and informed action. If you are facing concerns regarding a DPN or need personalised legal advice, contact us today at Access Law Group on (02) 4220 7100. We bridge the gap between the law and you.

 

Navigating Your Response to a DPN

Once you receive a DPN, it's essential to act swiftly and decisively. Ignoring the notice or hoping the problem will go away is not an option. The ATO can take severe actions, including garnishing your wages or seizing your assets, to recover the debt.

Your first step should be to consult with a tax professional or legal advisor experienced in handling DPNs. They can help you understand the specifics of your notice and the options available to you. This may include negotiating a payment plan with the ATO or seeking to have the penalty reduced or withdrawn.

If your company is still operational, it might be possible to pay off the debt and avoid personal liability. However, if your company is insolvent, you may need to consider more drastic measures. This could involve entering into voluntary administration or liquidation, as mentioned earlier.

It's also crucial to remember that if you're a former director, you can still be held liable for debts incurred during your tenure. This is why it's essential to stay on top of your company's financial obligations, even after you've stepped down from your role.

In the face of a DPN, panic and fear can set in. However, maintaining your composure and seeking expert advice can make a significant difference. By understanding your rights, obligations, and the potential consequences, you can make informed decisions and navigate this challenging situation.

Remember, while a DPN can be daunting, it's not the end of the road. With the right approach and support, you can overcome this hurdle and move forward.

If you're facing a DPN, don't wait. Reach out to a professional today and start exploring your options.

Understanding Your Defence Options

If you believe you have a valid defence against a Director Penalty Notice (DPN), it's crucial to gather evidence supporting your claim. For instance, if you were unable to participate in the management of the company due to illness, you should provide medical records to substantiate your absence.

In cases where you ensured the company complied with its obligations, it's essential to document these efforts. This may include records of payments made, correspondence with the ATO, and minutes of meetings discussing the company's financial situation.

Involving a tax professional or legal advisor early on can help ensure you have a robust defence. They can guide you on the evidence needed and assist in presenting your case to the ATO.

Consequences of Ignoring a DPN

Ignoring a DPN can lead to severe consequences. The ATO can take enforcement actions such as garnishing your wages or seizing your assets to recover the debt. These actions can significantly impact your financial stability and personal life.

Moreover, a DPN can affect your credit rating, making it challenging to secure loans or credit in the future. It's therefore essential to address a DPN promptly and decisively.

Seeking Professional Help

Given the complexities of DPNs and the potential consequences, seeking professional help is highly advisable. A tax professional or legal advisor experienced in DPNs can:

By engaging a professional, you can ensure you're taking the right steps towards resolving the DPN and mitigating any potential damage.

Remember, receiving a DPN can be a challenging experience, but with the right approach and support, you can navigate through it. Don't hesitate to reach out for professional help if you're facing a DPN.