Changes and defences to director penalty notices

Following the context of the global financial crisis and the growing activity of harmful phoenix companies, a number of changes have been made to help the recovery of tax revenue from struggling companies. Director Penalty Notices can be issued to help regain some of these lost amounts, whereby amongst the rise of these fraudulent proceedings directors may find themselves in financial turmoil and receiving a Director Penalty Notice.

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 taxation 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 play. This defence is only applicable when were 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.