How To Respond To A Director Penalty Notice

HOW TO RESPOND TO A DIRECTOR PENALTY NOTICE

A director penalty notice (DPN) is a notice that the Australian Taxation Office (ATO) can send a current or former director, deeming them liable for a company’s unpaid amounts of:

1. pay as you go withholding tax;
2. goods and services tax; and
3. super guarantee charges.

If you require any further information regarding what a DPN is please refer to our previous article.

According to the ABC, DPNs are the most used tool of the ATO since they’ve started their pandemic debt recovery clean-up, with the ATO adopting firmer debt collection acts to ensure that all Australian businesses comply with their legal obligations.

This is illustrated through the ATO issuing 26,702 DPNs for the full 2023-24 financial year, which is a 52.94% increase from the 17,459 DPNs issued in the 2022-2023 financial year. The below table outlines the number of DPNs issued annually over the last few years:

It has not been uncommon for current or former directors to be taken by surprise and left confused after receiving a DPN for alleged debts from years prior (including debts from more than 10 years ago). It is vital that if you are a current or former director of a company that you know your rights and obligations regarding DPNs.

TYPES OF DPNS

Understanding the type of DPN received is the first step in preparing an appropriate response. In brief, DPNs come in two forms: lockdown and non-lockdown.

1. Lockdown DPNs are issued when the company has not lodged its business activity statements, income activity statements, or superannuation guarantee statements.
2. Non-lockdown DPNs are issued when the company has lodged its statements with the ATO within the required time, however have not paid the amounts owed.

RESPONDING TO LOCKDOWN DPNS

When a director is issued with a lockdown DPN, the director is automatically liable for the debt, which means that in order for a director to comply with a Lockdown DPN, the director must:

1. Cause the company to pay the underlying debt; or
2. Rely on a defence contained in schedule 1, section 269-35 of the Taxation Administration Act 1953 (Cth) (TAA Defences).

RESPONDING TO NON-LOCKDOWN DPNs

Following receipt of a Non-Lockdown DPN, the director must do one of the following within 21 days, in order to avoid personal liability:

1. Pay the amount owing;
2. Appoint a voluntary administrator;
3. Appoint a small business restructuring practitioner;
4. Appoint a liquidator to wind up the company;
5. Rely on one of the TAA Defences; or
6. In certain circumstances, enter into an arrangement/agreement with the ATO.

DOES A DEFENCE APPLY AND HOW DO I RAISE A DEFENCE?

The TAA Defences, provide that a director (including a former director), may not be liable for a DPN if:

1. Because of illness or for some other good reason, it was unreasonable to expect the director to be involved in company management at the time, and other directors were responsible for ensuring compliance (Illness or Good Reason Defence); or
2. The director took all reasonable steps (or there were no reasonable steps) (Reasonable Steps Defence) to ensure that:
   1. The directors of the company caused the company to comply with its obligations; or
   2. The directors caused an administrator of the company to be appointed; or
   3. The director caused a small business restructuring practitioner for the company to be appointed; or
   4. The directors caused the company to begin to be wound up; or
3. The DPN arose from the company reasonably applying the Superannuation Guarantee (Administration) Act 1992 (Cth) or A New Tax System (Goods and Services Tax) Act 1999 (Cth) to a matter.

These defences may be raisable:

1. During enforcement proceedings in court; or
2. After a director receives a DPN, if:
   1. The director provides information to the commissioner within 60 days from receiving the DPN or other written notice regarding debt recovery; and
   2. The commission is satisfied that either the Illness or Good Reason Defence, or Reasonable Steps defence applies.

SEEK LEGAL ADVICE IMMEDIATELY

Upon receiving a DPN, immediate action is crucial to avoid severe financial consequences and it is vital to consult with a legal expert who understands the intricacies of the DPN regime, given the severe consequences. The correct legal representation can ensure that you respond to a DPN in a compliant way in order to satisfy your obligations under the law. RCR are experts in navigating the complexities of the DPN regime, understanding whether a defence is raisable, and the best way to respond in order to ensure your interests are protected. Contact us today to discuss how we can assist.

The blog published by Rostron Carlyle Rojas is intended as general information only and is not legal advice on any subject matter. By viewing the blog posts, the reader understands there is no solicitor-client relationship between the reader and the blog published. The blog should not be used as a substitute for legal advice from a legal practitioner, and readers are urged to consult RCR on any legal queries concerning a specific situation.