Director Penalty Notice Case Study: How $280,000 in Director Penalties Were Remitted
A director contacted me after receiving a Director Penalty Notice (DPN) for approximately $280,000.
His first question was:
“How do I stop this company debt becoming my personal debt?”
He had been speaking with the ATO about a payment arrangement, but in the interim the ATO had issued him with a DPN.
By the time he sought advice, only 13 days remained before the DPN deadline.
The answer to his initial question depended on three things:
- When did the 21 day period expire?
- Were the penalties lockdown or non-lockdown?
- Could a formal appointment occur before the deadline?
Case outcome: The DPN related to approximately $280,000 of PAYG withholding and GST. Only 13 days remained before the deadline. The liabilities had been reported within the required period, so the penalties were non-lockdown. The underlying business was viable and suitable for Small Business Restructuring. A restructuring practitioner was appointed before the DPN deadline and the relevant director penalties were remitted.
When does the 21 day DPN period start?
The 21 day period does not start when the director receives or opens the DPN. Under section 269-25 of Schedule 1 to the Taxation Administration Act 1953, a DPN is taken to be given when the Commissioner leaves or posts it.
In this case, the director had only recently opened the letter, but the clock was already running.
Directors must also keep their ASIC address current. Under section 269-50 of Schedule 1 to the Taxation Administration Act 1953, the ATO can post a DPN to an address that based on information held by ASIC, appears to be, or to have been within the previous seven days, the director’s residential or business address.
The 21 day period is not extended or invalid because the notice was sent to an old address.
The director penalty already existed before the DPN
The company owed PAYG withholding and net GST.
The DPN regime also applies to Super and Wine Equalisation and Luxury Car Tax.
In this particular case the company had kept on top of its super owed.
When a company fails to pay one of these obligations by its due date, the director penalty arises by operation of law.
The DPN does not create the penalty.
The DPN is the notice the ATO must give before it can commence proceedings to recover the director penalty from the director after the 21 day notice period has expired.
Was the DPN lockdown or non-lockdown?
The next question was whether the penalties were lockdown or non-lockdown.
For PAYG withholding and GST, the company must notify the ATO of the liability within three months after the due date.
If it does not, appointing an administrator, restructuring practitioner or liquidator, will generally not remit the corresponding director penalty.
How Payday Super changes the DPN rules from 1 July 2026
From 1 July 2026, the DPN rules for unpaid superannuation have changed.
Super contributions generally need to be received by the employee’s fund within seven business days after payday, although longer periods can apply in some circumstances.
If a Superannuation Guarantee Charge (SGC) liability arises, the timing of the Voluntary Disclosure Statement (VDS) becomes critical.
For DPN purposes, the SGC “due day” is the earlier of:
- the first day after the end of the 60-day period starting on the relevant payday; or
- the day the ATO assesses the SGC.
If the ATO has not made an assessment earlier, the company must lodge a VDS on or before that due day to preserve the ability to remit the corresponding director penalty through voluntary administration, Small Business Restructuring or Liquidation.
However, if the ATO assesses the SGC before that date, the position changes. A VDS is only valid if it is lodged before the day the assessment is made. An early ATO assessment can therefore bring the effective reporting deadline forward.
If no VDS is lodged in time, appointing an administrator, restructuring practitioner, or liquidator, will not remit the corresponding SGC director penalty.
Also, if the VDS does not report the full SGC liability, the penalty can be locked down for the non-disclosed amount.
This test applies separately to each relevant payday.
TIP: Even if the company cannot pay the debt, ensure its tax obligations are lodged on time. Late lodgement can reduce the options available to a director who later receives a DPN.
Does an ATO payment arrangement stop a DPN?
The director was considering continuing to negotiate an ATO payment arrangement and ignore the DPN.
A payment arrangement can help a company manage its tax debt, but it does not remit a director penalty.
This is a very important point.
While that arrangement remains in force, the legislation restricts the Commissioner from taking act to recover the director penalty.
However, the director penalty remains in the background.
If the company later defaults on the payment arrangement after the 21 day period has expired, the director loses remission options that were available while the DPN period was still running.
Does resigning as a director stop a DPN?
The director asked whether his wife, who was a co-director, could resign and protect herself.
It would not.
Resignation does not extinguish a penalty arising from obligations incurred while the person was a director.
The ATO can issue and enforce a DPN after the director resigns.
New Directors
New directors also need to be aware of the DPN rules.
A new director can become personally liable for company tax and superannuation debts that existed before their appointment.
For existing overdue debts, a new director generally has 30 days from appointment to ensure the company pays the debt, appoints an administrator, restructuring practitioner, or liquidator to avoid the liability.
There is a separate rule for lockdown penalties.
For PAYG withholding and net GST, a new director may have up to three months from appointment to ensure outstanding liabilities are reported for the purposes of the lockdown rules.
This special three-month rule does not apply to Superannuation Guarantee Charge.
For superannuation liabilities, whether the penalty is lockdown depends on whether the required reporting was completed within the original SGC reporting period. Appointing a new director does not create a new reporting period for superannuation for lockdown purposes.
Was there a business worth saving?
Once I confirmed the penalties were non-lockdown, the next question was whether there was a business worth saving.
I reviewed:
- the company’s current and historical trading;
- liabilities;
- employee entitlements;
- current tax and superannuation obligations;
- secured debts and personal guarantees; and
- the funding available for a restructuring proposal.
The business was profitable and could meet its ongoing expenses and future tax obligations.
There was a viable business to preserve, so the director decided to proceed with Small Business Restructuring.
If the business had not been viable, liquidation could still have been used to deal with the company’s affairs and remit the non-lockdown director penalties, provided that process started before the DPN deadline.
For more information about Small Business Restructuring, liquidation and other formal insolvency options, see my article:
What is Small Business Restructuring: How does it work?
Why the SBR appointment had to occur before the DPN deadline
For a non-lockdown penalty, the remission pathways include:
- payment of the underlying liability;
- appointment of a voluntary administrator;
- appointment of a small business restructuring practitioner; or
- appointment of a Liquidator.
That step must take legal effect before the DPN deadline.
An intention to appoint is not enough.
In this case, we got the appointment made within time.
What happens with a lockdown DPN?
A lockdown DPN does not mean there are no options.
It adds another issue that needs to be addressed at the director level.
Small Business Restructuring can still be used to deal with the company’s debt and preserve a viable business.
Liquidation can still be the right outcome where the company cannot continue.
The difference is that neither process remits a lockdown director penalty.
The company remains liable for the tax debt, while the director is personally liable for the corresponding penalty.
Any proposed solution therefore needs to consider both positions:
- the company’s debt through restructuring or liquidation; and
- the director’s personal liability through a separate strategy.
The ATO cannot recover the same underlying amount twice.
Payments made by the company reduce the corresponding director penalty, and payments made by the director reduce the company’s corresponding liability.
However, any unpaid balance remains a personal exposure for the director.
Why the director penalties were remitted in this case?
In this case, the penalties were remitted because:
- the 21 day DPN period had not expired;
- the relevant penalties were non-lockdown; and
- the business was suitable for Small Business Restructuring and the restructuring practitioner was appointed before the deadline.
Liquidation could also have resulted in remission of the non-lockdown penalties if the company had begun to be wound up within the DPN period.
In this case, Small Business Restructuring was the better outcome because the underlying business was viable.
A payment arrangement or resignation would not have remitted the penalties.
Received a Director Penalty Notice?
If you have received a Director Penalty Notice, it is important to act quickly.
The first step is to work out how much time is left and what options are still available before the deadline.
If you would like to discuss your position, contact me as soon as possible.
I can review the DPN and the company’s circumstances, explain the options available, and help determine the next steps.
