Legal Advice and Representation for Director Penalty Notices

If you have received a Director Penalty Notice (DPN) from the Australian Taxation Office, obtaining taxation law advice promptly can be critical.

Chris Garlick is an experienced tax lawyer providing independent legal advice and representation to company directors facing personal liability for certain unpaid company tax and superannuation obligations.

A Director Penalty Notice can expose a director personally to liabilities associated with a company’s unpaid PAYG withholding, GST and Superannuation Guarantee Charge obligations. The Director Penalty Notice regime is contained in Division 269 of Schedule 1 to the Taxation Administration Act 1953. 

The options available to a director can depend on the type of liability, when the company’s reporting obligations were met, the history of the company and the circumstances of the individual director.

Because statutory time periods apply after a Director Penalty Notice is issued, obtaining advice promptly can be important.

Received an ATO Director Penalty Notice? Speak with Chris Garlick about the notice, your potential personal liability and the options available before taking the next step.

What Is a Director Penalty Notice?

The Director Penalty Notice regime is designed to encourage directors to ensure that companies meet certain taxation and superannuation obligations or, where appropriate, take steps available under the corporate insolvency framework.

Under Division 269, directors have obligations relating to specified company liabilities. If those obligations are not met, a director may become personally liable for a penalty corresponding to the company’s unpaid liability. 

A DPN is the notice through which the Commissioner can take steps to recover that director penalty.

Director Penalty Notices can involve liabilities relating to:

PAYG withholding
Goods and Services Tax (GST)
GST instalments
Superannuation Guarantee Charge (SGC)
Certain estimates of underlying liabilities

The circumstances surrounding each liability need to be considered carefully because different consequences can arise depending on the company’s reporting and payment history.

Received a Director Penalty Notice?

Receiving a DPN should be treated seriously and promptly.

The legislation provides a 21-day notice period in connection with recovery of a director penalty. The legal consequences and available options depend on the particular circumstances, so directors should not assume that simply resigning as a director, entering into a payment arrangement or taking another step will automatically remove personal liability. 

Chris can assist by:

Reviewing the Director Penalty Notice
Identifying the liabilities covered by the notice
Reviewing the company’s reporting history
Assessing potential personal liability
Advising on the operation of Division 269
Considering whether statutory defences may apply
Advising on available options and time limits
Communicating with the ATO where appropriate
Advising in relation to ATO recovery action
Representing directors in disputes concerning DPN liability

Obtaining advice quickly allows the notice and surrounding circumstances to be assessed before important statutory periods expire.

Lockdown and Non-Lockdown Director Penalty Notices

Director Penalty Notices are commonly described as lockdown and non-lockdown DPNs.

These terms are used to distinguish between circumstances where particular steps may still affect a director penalty and circumstances where the underlying reporting history means that those options are more limited.

Whether a penalty can be remitted depends on the particular liability, when required information was reported to the ATO and the operation of Division 269.

For this reason, determining whether a DPN involves liabilities commonly described as lockdown or non-lockdown liabilities is an important part of reviewing a notice.

Chris can review the company’s reporting history and the DPN to advise on the legal position and available options.

Director Liability for Company Tax Debts

A company is ordinarily a separate legal entity, but the Director Penalty Notice regime creates circumstances in which directors can become personally liable for penalties corresponding to specified unpaid company obligations.

Division 269 places obligations on directors to cause the company to comply with relevant obligations or take appropriate steps under the corporate insolvency framework. 

Director liability can therefore become an important personal issue even where the original tax debt belongs to the company.

Issues may include:

Unpaid PAYG withholding
Unpaid GST
Unpaid Superannuation Guarantee Charge
Late reporting of company liabilities
Historical company tax debts
Former director liability
New director liability
ATO recovery proceedings
Multiple directors
Company insolvency or restructuring

The position of each director should be considered individually.

Former and New Directors

Resigning as a director does not necessarily eliminate liability for obligations arising during the period in which a person was a director.

Similarly, a person who becomes a director of a company with existing unpaid obligations may acquire responsibilities under the Director Penalty Notice regime.

The legislation contains specific rules governing directors and the timing of their obligations. 

Anyone considering becoming a director of a company with outstanding tax or superannuation obligations should therefore understand the company’s compliance position.

Chris can advise current, former and newly appointed directors about their potential exposure under the DPN regime.

Defences to a Director Penalty

Division 269 provides statutory defences in particular circumstances.

These include circumstances involving illness or another good reason that made it unreasonable to expect the director to participate in management, as well as circumstances involving reasonable steps taken by the director in relation to the company’s obligations and specified insolvency options. Whether a defence is available depends on the evidence and circumstances of the particular director. 

It is therefore important not to assume that a defence applies simply because a director was not involved in the company’s day-to-day financial affairs.

Chris can advise on:

Whether a statutory defence may be available
The evidence required to support a defence
The director’s involvement in company management
Steps taken to address unpaid liabilities
Advice received by the director
Company records and correspondence
Communications with the ATO
Potential challenges to DPN liability

ATO Recovery Action Against Directors

Where a director penalty remains payable, the ATO may pursue recovery against the director personally.

The interaction between the company’s underlying liability and a director’s penalty can be complex. Division 269 also contains provisions dealing with the effect of payments against the company’s liability and corresponding director penalties. 

Chris can advise directors facing ATO recovery action and assess whether the amount claimed, the underlying liabilities and the legal basis for recovery should be challenged.

Director Penalty Notices and Company Insolvency

Director Penalty Notices frequently arise when a company is experiencing financial distress.

The DPN regime interacts with corporate insolvency procedures, including voluntary administration, restructuring and liquidation. However, the effect of those steps on a director penalty depends on the timing and circumstances. 

Directors should therefore obtain appropriate taxation and insolvency advice before assuming that placing a company into administration, restructuring or liquidation will resolve their personal DPN exposure.

Chris can work with insolvency practitioners, accountants and solicitors where a Director Penalty Notice forms part of a broader company insolvency or restructuring matter.

Director Penalty Notice Disputes

A dispute may arise concerning the existence or amount of a director penalty, the liabilities underlying the notice, whether a statutory defence applies or the ATO’s recovery action.

These matters can involve detailed consideration of:

Division 269 of Schedule 1 to the Taxation Administration Act 1953
Company taxation records
ATO reporting history
Director appointment and resignation dates
PAYG withholding liabilities
GST liabilities
Superannuation Guarantee Charge
ATO correspondence and notices
Evidence relevant to statutory defences
Payments made by the company or directors

Chris can advise and represent directors where a DPN develops into a substantive taxation dispute or recovery proceeding.

Why Use a Tax Lawyer for a Director Penalty Notice?

Director Penalty Notices sit at the intersection of taxation law, personal director liability and corporate financial distress.

Taxation law advice can help:

Clarify whether you are personally liable
Identify the liabilities covered by the DPN
Determine applicable statutory deadlines
Review the company’s reporting history
Assess whether a statutory defence may apply
Identify evidence relevant to your position
Understand the consequences of available options
Respond strategically to the ATO
Deal with associated ATO recovery action
Protect your position if litigation becomes necessary

Where an accountant, solicitor or insolvency practitioner is already involved, Chris can work with those advisers and provide taxation law advice concerning the DPN.

When Should You Get Advice About a Director Penalty Notice?

Consider obtaining advice promptly if:

You have received a Director Penalty Notice
The ATO has warned that a DPN may be issued
Your company has unpaid PAYG withholding
Your company has unpaid GST
Your company has unpaid Superannuation Guarantee Charge
Company tax liabilities have been reported late
You are considering resigning as a director
You recently became a director of a company with tax debts
The company is considering restructuring, administration or liquidation
The ATO has commenced recovery action against you personally
You believe a statutory defence may apply
You dispute the amount or basis of the director penalty

The earlier the position is reviewed, the more opportunity there is to understand the legal consequences before statutory deadlines expire.

Speak With a Director Penalty Notice Lawyer

If you have received an ATO Director Penalty Notice or are concerned about potential personal liability for company tax or superannuation obligations, Chris Garlick can provide independent taxation law advice about your position and available options.

Chris advises company directors directly and works with solicitors, accountants and insolvency practitioners in complex Director Penalty Notice and ATO taxation matters.

Contact Chris Garlick to discuss your Director Penalty Notice and the appropriate next step.