Director penalty notices: the ATO’s big stick to collect debt

But do they contain a carrot?

The Australian Taxation Office (ATO) is reportedly issuing director penalty notices (DPN) at an average rate of 60/day, according to an ATO spokesperson[1].

Here’s what your clients need to know: a director penalty notice (DPN) doesn’t make them liable for outstanding company debt, directors are already liable by operation of law. The director penalty notice is formal notice and starts the clock to remit it or face the consequences.

Here’s what your clients must do:

• Complete their business lodgments even if unable to pay the associated liabilities, PAYG, GST and superannuation.

• Ensure their business address is correct on ASIC’s register.

• Speak to a liquidator if they’re unable to pay the DPN amount. 

A lockdown DPN, (the ATO’s big stick) applies when:

• a company failed to lodge its business activity statements (BAS) and instalment activity statements (IAS) within three months of the due lodgment

• superannuation guarantee charge (SGC) statements within one month and 28 days after the end of the quarter that the superannuation charge contribution relates to.

In such cases, the director’s exposure to the penalty is automatic and permanent. The only ability to remit (i.e. cancel) the penalty is to pay the debt in full. To avoid this exposure, directors must ensure they complete their lodgments even if unable to pay the associated liabilities.

A non-lockdown DPN (the ATO carrot), however gives the director options that maybe exercised within 21 days to remit the applicable tax (penalty), being:

1. Pay the debt.

2. Appoint a voluntary administrator.

3. Appoint a small business restructuring practitioner.

4. Appoint a liquidator.

If the director/s fails to do one of these things within 21 days of the DPN being issued, the director penalty permanently locks down on the director (the stick comes out!), and the ATO can commence proceedings to recover the debt.

To make matters somewhat more confusing for directors, the ATO is now issuing DPNs that split the amounts owing into two columns for lockdown (monthly unremitted amounts) and non-lockdown (monthly remitted amounts).

Director penalty notices can be a complex scenario to dissect, come to terms with, and determine which option for your client is most appropriate. Having an insolvency practitioner in your network is crucial to have the support you and your clients need. The insolvency and turnaround teams at Worrells:

• explain how director penalty notices work

• review individual circumstances to assist

• outline options available based on their individual circumstances

• offer support through the decision-making process.

We operate as specialists in a unique sector, dealing with bad debts and distressed businesses and personal finances. Tough situations often mean honest conversations and we will never shy away from the straight talk that insolvency demands. Contact your local Worrells Principal for a no-obligation and complimentary discussion.

[1] https://www.smartcompany.com.au/finance/tax/director-penalty-notice-lockdown-failure-lodge-penalty-amnesty/