It feels like the perfect loophole: simply stop paying ASIC fees, let ASIC strike off your company, and walk away from the company and its debts.
It costs nothing and requires zero paperwork. But for companies with a potential tax debt, this "do nothing" strategy is actually a trap set on a delayed fuse.
What looks like a clean break leaves a ghost that could come back to haunt you. When the ATO comes knocking years later with a Director Penalty Notice (DPN), you’ll find yourself in a legal Catch-22: you are personally liable, but you can’t appoint an external administrator (e.g. a small business restructuring practitioner, liquidator, or voluntary administrator) to save yourself because your company no longer exists.
IN SHORT
The Myth: Allowing a company to be automatically deregistered by ASIC (occurs after ASIC strike off action) is a cheap, "easy way out" that wipes out company debts.
The Reality: Deregistration does not cancel tax or other debts. The ATO can, and does, issue Director Penalty Notices (DPNs) years later, making directors personally liable for unpaid PAYG, GST, and SGC (Superannuation).
The "Catch-22": If you receive a DPN for a deregistered company, you are unable to appoint a liquidator or restructuring practitioner to remit the penalty. You become trapped with personal liability unless you take expensive, urgent court action.
The Consequence: Reinstating a company to deal with a DPN requires an expensive court application. This costs significantly more than proactive steps would have cost originally.
The Solution: Instead of "walking away," proactively reach out to your accountant or a trusted insolvency practitioner to discuss the options to properly deal with debts and prevent the personal liability trap.
1. Surprise! Deregistration doesn't make your tax debts disappear.
The most common and dangerous myth is that once a company is deregistered, its debts die with it. This is fundamentally untrue, especially when it comes to the ATO.
Through the Director Penalty Notice (DPN) system, the ATO can make directors personally liable for a company's unpaid Pay-As-You-Go (PAYG) withholding, Goods and Services Tax (GST), and Superannuation Guarantee Charge debts (SGC). With the ATO having issued over 80,000 DPNs this year, this is not a dormant threat; it's an active enforcement strategy. As advisors, we are seeing this firsthand. Directors who assume the ATO is too busy to pursue old debts are making a costly mistake.
Here is the critical, counter-intuitive fact: the ATO can and frequently does issue a DPN to a director even after their company has been deregistered by ASIC. To them, the company's registration status is irrelevant, and the director remains squarely in their sights. The subsequent deregistration by ASIC, often just for non-payment of fees, does not erase the director's responsibility.
As a stark example, in the recent Perrin case (Perrin v ASIC [2024] WASC 38), a director received a DPN for $170,903 almost three years after his company had been deregistered for failing to pay ASIC fees.
2. You lose control of all company property.
The moment ASIC deregisters your company, it legally ceases to exist. At that instant, any property the company owned is automatically transferred to government bodies. This legal process is known as "vesting."
Any money in company bank accounts, vehicles, real estate, or equipment immediately vests in ASIC (or the Commonwealth, in the case of trust property). As a former officeholder, you no longer have any right to deal with or access what was once the company's property. Critically, this means you cannot use the company’s own cash reserves to pay for the urgent legal advice and court fees required to solve the very problem deregistration has created.
3. You're trapped. The 21-Day DPN countdown you can't stop.
When the ATO issues a "non-lockdown" DPN, it gives the director a 21-day window to take specific actions to avoid personal liability for the company's tax debt. These actions typically include appointing an external administrator (either a small business restructuring practitioner, liquidator or a voluntary administrator).
This is where directors of deregistered companies find themselves in a devastating "Catch-22." You receive a DPN with a 21-day compliance deadline, but you are legally powerless to meet its requirements. You cannot appoint a liquidator to a company that no longer legally exists.
This trap has severe real-world consequences:
The "Mr X" Case: A director, Mr X, received a $430,000 DPN related to a company he had allowed to be struck off and deregistered. Because the company didn't exist, he couldn't appoint a liquidator within the 21-day timeframe. The penalty became a personal liability, forcing him toward personal bankruptcy.
The Perrin Case: The director in this matter was also unable to appoint a liquidator. His only option was to launch a frantic and expensive court application to solve the problem before the 21-day clock ran out.
4. Getting our company back is a costly, high-stakes scramble.
If you find yourself with a DPN for a deregistered company, your only hope is to have the company reinstated. There are two paths, but only one is realistic in this crisis.
ASIC Application: You can apply to ASIC for reinstatement, but this administrative process is unlikely to be completed within the tight 21-day DPN timeframe. It is not a viable solution for an urgent DPN. Also, to have ASIC reinstate a company, the company must be solvent. If there are debts outstanding and no assets remaining, you cannot use this option.
Court Application: This is the only realistic option for a director facing an imminent DPN deadline. This forces the director to pay for multiple layers of professional help at once: legal fees for the urgent court application, court filing fees, and then the eventual costs of the external administration, all to fix a problem that a proactive administration (liquidation, small business restructuring, or voluntary administration) would have avoided.
5. Bad advice can land you in hot water.
Some directors intentionally allow their company to be deregistered based on poor advice, believing it is a low-cost alternative to a formal liquidation or external administration for an insolvent company. This is a dangerous path.
In the Perrin case, the presiding judge issued a pointed warning about this very strategy, which should be a clear red flag to both directors and their advisors.
"There was troubling evidence before the Court that Mr Perrin was acting in accordance with professional accounting and taxation advice when he allowed RSP Group Pty Ltd to lapse its registration requirements with ASIC, so as to allow for deregistration to occur in circumstances where he believed RSP Group Pty Ltd to be insolvent”.
A judge explicitly calling out this type of professional advice is a serious matter. It underscores that intentionally allowing an insolvent company to be struck off as a strategy to deal with its debts is ill-advised and should be avoided.
Better alternatives to “walking away”
If you’re thinking about shutting down the company, it’s wise to consider more proactive and legally sound alternatives rather than waiting for ASIC to strike it off:
Engage a liquidator (Creditors’ Voluntary Liquidation): If the company is insolvent (can’t pay its debts), you can initiate a creditors’ voluntary liquidation. This involves appointing a liquidator to formally wind up the company. Yes, there’s a cost involved, but the liquidator will handle the proper distribution of assets and dealings with creditors. This approach ends the company’s life in an orderly way and greatly reduces the chances of nasty surprises (like court actions or DPNs) later.
Consider restructuring or administration: If the business has potential to survive with some changes, talk to an insolvency professional about options like voluntary administration or small business restructuring. These can address debts while possibly saving the business. The key is to act early, rather than doing nothing.
Voluntary deregistration/winding up (if truly dormant and solvent): If your company has no outstanding debts and minimal assets, and you simply don’t need it anymore, you can apply to ASIC for a voluntary deregistration. Or appoint a liquidator to conduct a Solvent Members Voluntary Liquidation (this may have taxation benefits). There are straightforward ways to close a solvent, inactive company.
Final thoughts
Abandoning a company might seem like an easy escape, but it can create a "corporate ghost" that returns to haunt your personal finances years later. The risks of personal liability and costly legal battles far outweigh the perceived convenience of walking away.
Given the risks, is avoiding the cost of an external administration today worth betting your personal financial future on it tomorrow? Proactive advice on a formal insolvency process is not an expense; it is an essential insurance policy against personal financial consequences.