Directors Beware – DPNs on the Way

During the COVID-19 pandemic, struggling businesses were afforded some breathing space to deal with creditors and unpaid debts, including taxation obligations.  The Australian Taxation Office (ATO) have reported that as of 30 June 2021, a record amount of $55 billion was owing in tax debt. 

Now that most of the COVID-19 measures have expired, the ATO have increased their efforts to recover outstanding tax debts, flagging overdue Business Activity Statements (BAS) and other lodgments as one of their measures to rein in the debt.  This has resulted in an increase in Director Penalty Notices (DPN).

What is a DPN?

A Director Penalty Notice (DPN) is a formal notice issued by the ATO putting a director on notice for outstanding tax owed by the company. 

When a company does not pay Pay As You Go (PAYG), GST or Superannuation Guarantee Charge (SGC) by the due date, the amount owing can become a penalty.  A DPN essentially gives notice to a director that they must comply with the notice, failing which the penalty will be imposed on the director in their personal capacity.  The ATO can then commence legal proceedings against the director to recover the debt.

The provisions of the DPN regime are outlined in Division 269 of the Tax Administration Act 1953 (Cth).  The regime aims to:

  • ensure a company promptly deals with its outstanding tax debts rather than continuing to trade and accrue further debt; and
  • reduce phoenix activity (where a company accumulates debts and is then placed into voluntary administration or liquidation to allow a new company, free from debt, to rise up and continue trading).

There are two types of DPNs, a non-lockdown DPN and a lockdown DPN. 

Non-lockdown DPN

A non-lockdown DPN may be issued to a director for PAYG, GST or SGC which is not paid by the due date but where the company has lodged its BAS and Installment Activity Statements (IAS) within three months of the due date and the SCG statement within one month and 28 days after the end of the quarter.

To avoid personal liability, a director will have 21 days to comply with a non-lockdown DPN by:

  • paying the amount owed;
  • appointing an administrator to the company;
  • appointing a small business restructuring practitioner; or
  • taking steps to wind up the company.[1] 

If appropriate action is taken within 21 days, the penalty may be remitted, or cancelled. 

Lockdown DPN

A lockdown DPN may be issued for unpaid PAYG, GST and SGC where the company is late lodging its BAS and IAS (i.e. longer than three months after the due date) and SCG statement (i.e. longer than one month and 28 days after the end of the quarter).  If a lockdown DPN is issued, the penalty will not be remitted unless the debt is paid in full. 

Very simply, this means that if you receive a DPN, you need to act immediately. 

Any defences available?

If you fail to comply with a DPN, defences are limited.  They include:

  • if you were a director of the company and, due to illness, it would be unreasonable to expect you to take part in the management of the company at that time;
  • if you were a director of a company and you took all reasonable steps to ensure that the directors complied with the DPN; and
  • relevant only to SGC liabilities, a defence is available where a director took reasonable care in applying the Superannuation Guarantee (Administration) Act 1992 in relation to the superannuation payable.

What can I do? 

If you receive a DPN you must act quickly.  Remember you only have 21 days to comply before the liability becomes personal.  Contact one of our insolvency experts to discuss the options which may be available to you.

[1] Tax Administration Act 1953 (Cth), Schedule 1, s 269-15.

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Cronin Miller Litigation is a Gold Coast based law firm specialising in resolving commercial disputes, and providing effective results for persons who have a claim of a commercial nature.