Deregistering a company does not remove a Director Penalty Notice or the director’s personal liability for unpaid tax debts. Even after deregistration, the ATO can pursue recovery, and the company may be reinstated for enforcement. Directors must address DPN obligations directly, as closing the company does not eliminate the risk.
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On This Page
- Introduction
- Can a Company Be Deregistered with an Outstanding DPN?
- Why Deregistering a Company Does Not Remove Director Liability
- Outcomes If the Company Is Already Deregistered
- Key Risks of Deregistering a Company with Tax Debt
- Why Timing Matters
- Director Resignation and Ongoing Liability
- Next Steps
- FAQs
Introduction
Many company directors assume that deregistering a company will also eliminate its tax debts. However, when a Director Penalty Notice (DPN) has been issued, the situation can be more complicated.
ASIC deregistrations does not necessarily remove the director’s personal liability for those debts. This blog explains how deregistration affects outstanding DPNs and the risks directors need to consider.
Can a Company Be Deregistered with an Outstanding DPN?
Yes, a company can technically be deregistered even if there is an outstanding Director Penalty Notice (DPN), however, doing so does not remove the DPN. It can expose directors to significant legal and financial risk.
Key issues include:
The “No Liabilities” Rule
Under section 601AA of the Corporations Act 2001, a company applying for voluntary deregistration must declare that:
- the company is not carrying on business
- it has assets worth less than $1,000
- it has no outstanding liabilities
- it is not involved in legal proceedings
If a company still has unpaid tax debts or a potential DPN liability, declaring that there are no liabilities may expose the director to false or misleading declaration risks.
ASIC and ATO Oversight
When a deregistration application is submitted:
- ASIC notifies government agencies, including the ATO
- the ATO may object to the deregistration if tax debts remain outstanding
In many cases, deregistration is blocked until the tax issues are resolved.
Administrative Deregistration
Sometimes a company is deregistered because directors stop lodging documents or paying annual review fees.
However, this does not cancel outstanding tax obligations or director liability. It simply means the company has ceased to exist as a legal entity.
Why Deregistering a Company Does Not Remove Director Liability
Director Penalty Notices are designed to ensure that directors remain responsible for certain unpaid company taxes.
Under Division 269 of Schedule 1 to the Taxation Administration Act 1953, a DPN can make directors personally liable for:
- PAYG withholding
- Superannuation Guarantee Charge (SGC)
- GST reported through BAS
Once a DPN is issued, the liability attaches to the director personally, not just to the company.
Outcomes If the Company Is Already Deregistered
Deregistration does not prevent the ATO from pursuing directors personally for unpaid tax debts.
Possible outcomes include:
Issuing of a DPN Post-Deregistration
The ATO may still issue a DPN for tax debts incurred while the company was active, even if the company has already been deregistered.
Reinstatement of the Company
Under section 601AH of the Corporations Act, ASIC or a court may reinstate a deregistered company.
This may occur if:
- the ATO wants to appoint a liquidator, or
- investigations are required into company transactions before deregistration.
Personal Enforcement
Even if the company remains deregistered, the ATO can pursue the director personally through:
- garnishee notices on bank accounts or wages
- legal recovery proceedings
- bankruptcy action
Key Risks of Deregistering a Company with Tax Debt
Deregistering a company with unresolved tax debts can create several risks for directors.
False Declarations to ASIC
To voluntarily deregister a company, directors must declare that there are no outstanding liabilities.
If this declaration is made while tax debts remain unpaid, it may be treated as a false or misleading statement to ASIC, which can carry separate penalties.
Personal Bankruptcy Risk
If a DPN becomes a personal debt and remains unpaid, the ATO may initiate bankruptcy proceedings against the director.
Why Timing Matters
Reinstatement can create a difficult situation for directors.
Example:
A director who receives a non-lockdown DPN has 21 days to place the company into liquidation to avoid personal liability. If the company has already been deregistered, this option is no longer immediately available.
The director may then need to:
- Apply to the Supreme Court for urgent reinstatement, and
- Attempt to appoint a liquidator within the remaining time.
This process can be complex and expensive, and delays may cause the 21-day DPN deadline to expire.
Director Resignation and Ongoing Liability
Director Resignation Does Not Remove Liability
Some directors attempt to resign before deregistration to avoid responsibility.
However, under the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020, a resignation may be invalid if it leaves the company without directors. The ATO may also disregard resignations made to avoid tax liabilities. Moreover, liability can still be attached to the director who held office when the debt arose.
Company Property May Vest in ASIC
Once a company is deregistered, any remaining property of the company vests in ASIC or the Commonwealth
This can include:
- Bank accounts
- Vehicles
- Equipment
- Tax refunds
Directors may lose access to these assets even if they intended to use them to pay company debts.
Transactions Before Deregistration May Be Investigated
If a company is later reinstated and liquidated, a liquidator may review transactions made shortly before deregistration.
Transfers of company assets may be challenged as:
- uncommercial transactions
- voidable transactions
- illegal phoenix activity
Next Steps
Understanding whether your Director Penalty Notice (DPN) is lockdown or non-lockdown is critical. This determines whether remission options are still available.
For company directors, the next step is to:
- Confirm whether a Director Penalty Notice has been issued
- Identify whether the DPN is lockdown or non-lockdown
- Calculate the exact 21-day response deadline
- Review the company’s outstanding tax lodgements
- Assess whether any statutory defences apply
- Understand the potential personal exposure
Acting quickly preserves your legal options and may significantly reduce personal exposure before enforcement action begins.
Seeking legal or insolvency advice early can help clarify your position and protect your assets before deadlines expire.
At Halo Advisory, we work for you — the director. Financial expert Greg Bartels offers a no-obligation, confidential conversation to help you understand where you stand, what risks exist, and what options are realistically available before deadlines reduce control. Get in touch today.
FAQs
How long must company records be kept after deregistration?
Company records must generally be kept for at least seven years after the transactions they relate to. Former directors are usually responsible for ensuring these records remain available if required by regulators or courts.
What happens to company assets after deregistration?
Any remaining company assets generally become property of the Australian government.
Can a company be deregistered if it is under investigation?
No. ASIC may refuse deregistration if the company is involved in legal proceedings or investigations.
Does deregistration cancel contracts signed by the company?
No. Existing legal obligations may still be enforceable against responsible parties or through company reinstatement.
Can directors face penalties for improper company deregistration?
Yes. Directors may face consequences if deregistration was used to avoid debts or mislead creditors.
Is shareholder approval required for voluntary company deregistration?
Yes. Shareholders must usually approve the application before the company can apply for deregistration.
