For many years now, the Australian Tax Office (ATO) has had the power to make a director personally liable for certain unpaid debts of their company by issuing a Director Penalty Notice (DPN). This has been a significant shift from the concept of limited liability of individuals associated with companies.
A company is required to:
- pay PAYG and GST to the Australian Taxation Office (ATO);
- lodge its BAS each quarter with the ATO to report PAYG and GST; and
- pay superannuation to its employees, or lodge a Superannuation Guarantee Charge Statement (SGC Statement) if it cannot do so.
If a company does not comply with these obligations, the ATO can issue a DPN to the director making them personally liable for the company’s unpaid PAYG, GST and superannuation.
The ATO issues two types of DPN:
- 21-day DPN; and
- Lockdown DPN.
Where a company does not pay PAYG, GST or superannuation, but has lodged its BAS and SGC Statement when due, the ATO can issue a 21-day DPN. The directors can only avoid personal liability if, within 21 days of the date of the DPN:
- the PAYG, GST or superannuation is paid; or
- the company is placed into liquidation or voluntary administration (VA).
If a company does not pay PAYG, GST or superannuation, and fails to lodge its BAS within 3 months of the due date or SGC Statement when due, the ATO can issue a Lockdown DPN. This is where the directors will remain personally liable for the unpaid PAYG, GST or superannuation irrespective of whether the company is placed into liquidation or VA.
The ATO can issue a Lockdown DPN even after a company is in liquidation or VA. The ATO can estimate a company’s debts for PAYG, GST and superannuation and issue a DPN based on its estimates.
If a company’s turnover is less than $20 million, the relevant dates for BAS are:
| Quarter | Due date for lodgement | Latest BAS lodgement date to avoid Lockdown DPN |
| July – September | 28 October | 28 January |
| October – December | 28 February | 28 May |
| January – March | 28 April | 28 August |
| April – June | 28 July | 28 October |
The relevant dates for SGC Statements are:
| Quarter | Date for payment of superannuation | Lodgement date for SGC Statement to avoid Lock DPN |
| July – September | 28 October | 28 November |
| October – December | 28 January | 28 February |
| January – March | 28 April | 28 May |
| April – June | 28 July | 28 August |
A director does not have to receive a DPN to become liable, because it is deemed to have been served once it is posted. The ATO can issue a DPN to a former director who was appointed at the time the liability was incurred. A DPN can be issued to a new director if they do not cause the company to comply with its obligations within 30 days of their appointment, and irrespective of whether they subsequently resign during that period.
If you become liable under a DPN, the ATO can and will:
- commence legal proceedings against you;
- if judgment is obtained, issue a Bankruptcy Notice seeking to make you bankrupt;
- garnishee funds from your personal bank account or from your wages; and
- target recovery action against any director it considers has the ability to pay.
In our experience, the risks associated with a DPN may be mitigated in the following ways:
- investigate the taxation affairs of a company before becoming a director;
- lodge BAS and SGC Statements no later than the timeframes set out above; and
- update your postal address with ASIC so you receive the DPN and can act upon it.
If you receive a DPN, you should:
- immediately seek legal advice;
- for a 21-day DPN, ensure any insolvency appointment occurs within the timeframe;
- for a Lockdown DPN, seek to negotiate a payment arrangement with the ATO to avoid recovery action;
- seek a contribution from any other directors to pay a proportionate part of the liability;
- raise a defence with the ATO if:
- you were unable to manage the company at the time the relevant time due to illness or other acceptable reason;
- you took all reasonable steps to ensure the company complied with its payment obligations;
- you took all reasonable steps to put the company in liquidation or VA; or
- you took reasonable steps to ensure the company complied with its superannuation obligations.
The defences outlined above are strictly construed and can be difficult to make out.
If you receive a DPN, or would like advice about taking up a directorship, do not delay in contacting DBL Solicitors.
Ben Trost
Senior Litigation Solicitor
