When the ATO issues a Director Penalty Notice on deregistered companies

Mervyn Kitay, Worrells Perth Principal, explains the options to directors when a Director Penalty Notice (DPN) is issued to a company that has been deregistered. Subscribe to stay up-to-date on the latest insolvency, bankruptcy and finance information from Worrells.


Today I'll discuss the unintended consequences arising when ASIC (Australian Securities and Investments Commission) deregisters a company and the ATO (Australian Taxation Office) thereafter issue a Director Penalty Notice on the director. This is in the context of the company becoming deregistered with tax debts still existing and where the director intentionally stops paying the ASIC fees so as to cause ASIC to deregister the company.

As our viewers would probably be aware, the practical effect of a director penalty notice is to impose personal liability on the director in relation to the company tax. The DPN allows a director to within 21 days appoint a liquidator, a voluntary administrator, or small business restructuring practitioner and thereby remit or wave that penalty. But in circumstances where the company has already been deregistered, there is no ability to appoint a liquidator or administrator or restructuring practitioner to the company, as it does not exist. So as a consequence of this, the director needs to urgently seek the services of his or her solicitor in order to make an urgent application to the court to reinstate the company and to have the company placed into liquidation. Now, this comes at an enormous cost both in terms of the legal fees paid in those circumstances as well as the enormous level of anxiety that exists whilst the director is fetting around trying to get his or her company reinstated. What many directors don't understand is that the ATO use the Australian Business Number, that is the ABN, and not the ACN when they issue DPNs. When a company is deregistered the ABN survives. Only by an application to the tax office will the ABN be expunged and the ATO clearly would not do so where a tax debt exists.

So the take-home of this is as follows: where a company has a tax debt and is insolvent, rather than allow the company to become deregistered, seek the advice of your accountant or lawyer and that of an insolvency practitioner with a view towards having the company placed into liquidation and thereby properly manage the potential exposure of the directors to the company tax debts, which will otherwise be triggered by the issuance of a director penalty notice. Thank you.

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