A common misconception among directors is that once they resign, their personal exposure to company debts ends.
Unfortunately, this is not always the case. However, with the introduction of Payday Super on 1 July 2026, understanding ongoing director liability has become even more important.
Resigning as a director draws a line under the period during which you were a director, but it does not necessarily remove liability for what may have happened during your appointment as a director. A former director can still find themselves dealing with the consequences of unpaid tax and superannuation, insolvent trading claims, personal guarantees and more, well after their resignation.
The introduction of Payday Super changes the way superannuation obligations arise and are managed. For directors considering stepping down from a company, Payday Super changes the risk landscape.
From 1 July 2026, the way employers deal with superannuation has fundamentally changed. Under Payday Super, employers are generally required to ensure superannuation contributions reach an employee’s fund within 7 business days of payday. Read more about the Payday Super changes here.
For directors, this is more than just an administrative change. Under the previous system, superannuation obligations were often viewed as a quarterly compliance issue. Payday Super shifts that focus to every payroll cycle, meaning compliance failures can arise more frequently and become apparent much sooner.
The changes also alter the reporting framework that determines whether a director penalty for unpaid SGC can be remitted. Under the new regime, where SGC arises in relation to a qualifying earnings day (payday), whether the required Voluntary Disclosure is made by the relevant SGC due day becomes particularly important.
As a result, directors can no longer think about super compliance as something reviewed periodically. Problems can arise at each and every payroll cycle and, if they are not dealt with promptly, the consequences can extend directly to directors who may be issued DPNs (and again, impacting one or more directors who may have already resigned but were directors at the time the super became payable).
For directors considering resignation, this means greater attention should be given to the company’s superannuation compliance before stepping away. A resignation will not necessarily prevent liability for unpaid obligations that arose while they were a director.
A DPN can follow you after resignation
A Director Penalty Notice (DPN) is a good example of director exposure following resignation.
The DPN regime can make directors personally liable (on a joint and several basis) for company PAYG withholding, GST and superannuation guarantee charge (SGC).
Resigning as a director does not extinguish a penalty associated with liabilities that arose during your time as a director. It is therefore entirely possible for a former director to receive a DPN after they have resigned as a director of the company. This can be particularly confronting where the director has been out of the business for some time and believed their involvement had ended. For example, where a company lodges its BAS more than 3 months after the due date, any unpaid BAS debt may become a “lockdown” liability for the directors. Resigning as a director does not remove that exposure. If the debt remains unpaid, the ATO can subsequently issue a DPN to the directors who were liable for the relevant period, including a director who has since resigned.
The key message for a director considering resignation, and one their advisors should be raising with them, is to understand the company’s ATO position before they step away. This includes identifying any outstanding BAS and SGC lodgements and the extent of any unpaid ATO debt.
Even where lodgements have been made on time, and the director’s exposure is not “locked down”, an unpaid liability can still give rise to a DPN after the director has resigned. The difficulty for the former director is that they may no longer have any control over the company or its response to the notice. In the case of a non-lockdown DPN, options that may otherwise be available within the 21-day, period including the appointment of a liquidator, voluntary administrator or small business restructuring practitioner, are decisions for the company and its current directors. A former director cannot simply cause the company to take one of those steps.
Resigning while significant ATO liabilities remain unpaid can therefore leave a former director in a difficult position because the personal exposure may remain, while their ability to control the company’s response has gone. Bringing lodgements up to date is important, but directors should also understand the extent of any unpaid ATO liabilities and their potential DPN exposure before resigning.
Personal Guarantees are another trap.
Directors should also remember that resigning as a director does not extinguish an individual’s personal exposure to claims by a party holding a personal guarantee. It is quite common for directors to personally guarantee obligations to banks, landlords, financiers and suppliers. Those guarantees do not expire or become ineffective because a person resigns as a director or sells their interest in the business.
Only the party in whose favour the guarantee was given can release a director from that guarantee. A director considering resignation should therefore identify any personal guarantees they have provided and seek a formal release from the relevant creditor. If a release cannot be obtained, consideration should be given to whether an indemnity or other appropriate protection can be obtained from the remaining directors or other relevant parties. Advisors can play an important role in identifying these exposures and ensuring they are appropriately addressed as part of the director’s exit.
What about an incoming director?
It’s not only outgoing directors who need to be careful about limiting their personal exposure to company debt. There is another side to this issue. Joining the board of an existing company can also bring exposure to liabilities that predate an appointment. The DPN regime provides newly appointed directors with a 30-day period to cause the company to address certain existing liabilities before they can themselves become exposed.
Before accepting a directorship, it is therefore worth understanding whether the company’s tax lodgements are current, whether PAYG and GST have been paid and, increasingly, whether the company’s superannuation obligations, including the lodgement of voluntary disclosures, are up to date.
This becomes even more important under Payday Super because directors will need visibility over super compliance throughout the year rather than simply at the end of the quarter.
So, how long does liability last?
There isn’t one answer. Different claims have different rules and limitation periods. What matters is the type of liability, when it arose, and what occurred while the person was a director. For someone considering resigning from a company that is experiencing financial difficulty, it is important to understand these issues before the resignation takes effect, rather than after the DPN or demand from a liquidator arrives.
That means understanding the company’s financial position, checking the company’s tax and superannuation compliance, considering any personal guarantees and seeking a release, and obtaining advice about any potential historical exposure.
Resignation can draw a line in the sand, but it doesn’t erase what happened while you were a director.
At Worrells, we regularly work with directors and their advisors to understand a company’s financial position, identify potential personal exposure, and consider the restructuring and insolvency options available. If you or your client is concerned about a company’s financial position or potential director exposure, contact your local Worrells Principal for a confidential discussion.
