A Director Penalty Notice (DPN) is an official notice from the ATO regarding outstanding payments. Under various acts of legislation, the ATO has the authority to collect outstanding payments, which are those amounts deducted under the PAYG provisions or unpaid Superannuation. The way in which this occurs is by making directors liable for these charges with a ‘penalty’ equal to the unpaid amount.
Under the Taxation Administration Act 1997 (Cth) there are two types of Director Penalty Notices that can be issued. The first being a “Non Lockdown” 21 Day Director Penalty Notice and the more severe “Lockdown” notice.
There are a couple of differences between these two notices. The “Non Lockdown” notice is usually issued when company directors have lodged their business activity statements but the PAYG withholding or SCG debt is unpaid. This type of notice gives directors 21 days to take action, which if done, leads to the penalty being remitted. Some of the actions able to be taken to ensure remittance include:
- Payment of the debt for which the DPN was issued
- Entering into personal insolvency as well as considering an external administration of the company
- Enter an agreement with the ATO to pay the liability, during which time the ATO cannot commence DPN proceedings
The second more serious lockdown notice is when, if the debt remains unreported for three months after the due date then the ATO can hold the director immediately personally liable with a Lockdown Director Penalty Notice, which does not allow for remittance procedures.
It is important to note that following the 2012 government changes to the regime, rules have been tightened. One of the main changes is that, directors can no longer discharge their personal liability by placing the company into administration or liquidation after 3 months have lapsed from the company’s payment due date where lodgments have not been made. Therefore, time is of the essence. It is important to keep the company’s and directors addresses in ASIC’s records current and up to date, such that once the DPN is posted to an address, action can be taken as swiftly as possible to avoid it unintentionally lapsing.
A wrong address or simple ignorance of protocol are not defensible arguments in the eyes of the law. On the other hand, a number of legitimate defences exist, the first being the ‘Good reason’ defence, whereby because of illness or for some other good reason, including where an ill spouse or child needs to be cared for, the director didn’t take part, nor was expected to take part in management of the company when they were under the obligation.
The second being the ‘Reasonable steps’ defence, whereby, the director took all reasonable steps to ensure that either the company complied with its obligation or an administrator or liquidator was appointed to the company or the company complied with its obligations to pay. This defence is only applicable when there are no reasonable steps the director could have taken to ensure any of these things happened. This is determined by the Commissioner when assessing the relevant context and circumstances in which it occurred.
The third defence only occurs when dealing with SGC whereby the company treated the Superannuation Guarantee (Administration) Act 1992 (Cth) as applying to a matter in a particular way that was reasonably arguable provided that the company also acted with reasonable care. This includes the 60 day period to raise defence against the recovery of all director penalties by methods other than court proceedings, such as collecting from third parties.
Ultimately, it can seem scary and daunting to be receiving a Director Penalty Notice, however the best thing to do is to contact an insolvency expert as soon as receiving this notification. These professionals can help guide you through financial turmoil and voluntary administration or help refer you to legal advice. For more information, please contact us at McLeod & Partners to assist you.