Voluntary administration may help remit liability for certain non-lockdown Director Penalty Notices (DPNs) if action is taken within strict timeframes. However, it does not automatically eliminate personal liability, particularly for lockdown DPNs or overdue lodgements. Timing is critical, and directors should seek advice immediately after receiving a DPN.
On This Page
- When Voluntary Administration May Help
- When Voluntary Administration May Not Help
- What Directors Should Do After Receiving a DPN
Introduction
Receiving a Director Penalty Notice (DPN) from the Australian Taxation Office (ATO) can place significant pressure on company directors. In some situations, a DPN may expose directors to personal liability for unpaid tax debts of the company, including PAYG withholding and superannuation liabilities.
In certain situations, such as where a company enters voluntary administration (VA) within the required timeframe, a DPN may have a different outcome. However, VA does not automatically eliminate director liability.
This guide explains what a DPN is, its different types, whether voluntary administration can help remit liability, and why timing is critical once a DPN has been issued.
First let us understand what a DPN is.
What Is a Director Penalty Notice (DPN)
A Director Penalty Notice (DPN) is a notice issued by the Australian Taxation Office (ATO) that can make company directors personally liable for certain unpaid company tax debts.
A DPN is commonly associated with unpaid:
- PAYG withholding amounts,
- Goods and services tax (GST)
- Superannuation Guarantee Charge (SGC) liabilities, and
- Certain other tax obligations, such as BAS or SGC statements and instalment activity statements remain overdue.
Once a Director Penalty Notice (DPN) is issued, the ATO can recover the penalty amounts from the director 21 days after the notice is issued if no action is taken to remit the penalty. Directors have 21 days to respond to a DPN after it is issued, during which they can take specific actions to avoid personal liability for the company’s unpaid tax obligations.
There are two types of DPNs that the ATO can issue: non-lockdown DPNs and lockdown DPNs:
- Non-Lockdown DPN: Applies when the company has lodged its required tax statements within the required timeframes, even if the company paid only part of the underlying debt or the company’s unpaid amounts remain outstanding.
- Lockdown DPN: Arises where company lodgements were significantly overdue. Director liability may become “locked down,” meaning appointing a voluntary administrator or liquidator will not automatically remit the penalty.
More on this: Lockdown DPN vs Non-Lockdown DPN
When Voluntary Administration May Help
Voluntary administration may assist where:
- The DPN is non-lockdown,
- The company’s lodgements are substantially up to date,
- Action is taken within the remission period, and
- A voluntary administrator is appointed before the deadline expires.
When Voluntary Administration May Not Help
Voluntary administration may not prevent personal liability where:
- The DPN is lockdown,
- The remission period has already expired,
- Company lodgements were significantly overdue, or
- There are substantial unpaid superannuation obligations.
In practice, the earlier directors seek advice after receiving a DPN, the more restructuring and liability-management options are usually available.
Note that VA primarily deals with the company’s financial position. It does not automatically make a DPN disappear or remove all personal exposure for directors.
What Directors Should Do After Receiving a DPN
The ATO can recover director penalties through various methods, including issuing a garnishee notice, offsetting tax credits against the penalties, or initiating legal proceedings.
If a director receives a DPN, it is important not to ignore it or delay seeking advice. DPN deadlines can significantly affect whether restructuring and liability-management options remain available.
Directors should:
- Confirm whether the DPN is lockdown or non-lockdown,
- Check whether company lodgements are up to date,
- Understand the deadline and remission period immediately,
- Review unpaid PAYG withholding and superannuation obligations,
- Assess whether voluntary administration or another restructuring option may still be available, and
- Obtain professional advice before the DPN deadline expires.
If a director fails to pay the penalty after a DPN is issued, the ATO may pursue personal action against the director, which could lead to bankruptcy if the debt remains unpaid.
Next Steps
Voluntary administration may help remit certain non-lockdown DPN liabilities if action is taken within the required timeframe. However, it does not automatically eliminate director liability, particularly where the DPN is lockdown or company lodgements were significantly overdue.
The key issue is often timing. Once DPN deadlines expire, directors may lose important remission and restructuring options, and personal liability exposure can become much harder to manage.
For Australian company directors, receiving a DPN is a sign that the company’s financial position requires urgent attention.
Seek professional advice and act promptly to protect your position and explore options that may still be available.
At Halo Advisory, we work for you — the director. Financial expert Greg Bartels offers a no-obligation, consultation 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
Can voluntary administration stop a DPN?
Sometimes.
Voluntary administration provides immediate moratorium protection, freezing unsecured creditor claims, lawsuits, and debt enforcement actions during the administration period.
Also, VA may help remit liability for certain non-lockdown DPNs if action is taken within the required timeframe. However, it does not automatically eliminate director liability.
Does voluntary administration remove personal liability for directors?
Not automatically.
Directors may still remain personally liable depending on:
- The type of DPN issued,
- Whether company lodgements were made on time, and
- Whether the relevant deadlines have expired.
For example, a non-lockdown DPN can be issued when a company has lodged its Business Activity Statements (BAS) within 3 months of their due date, allowing directors to avoid personal liability by taking certain actions within 21 days.
On the other hand, a lockdown DPN is issued when a company has not lodged its BAS or other required statements within the specified timeframes, and it results in immediate personal liability for the director unless the debt is paid in full.
Can the ATO still pursue directors personally after voluntary administration?
Yes, in some situations.
Voluntary administration may help the company restructure, but it does not automatically prevent the ATO from taking legal action to recover unpaid amounts from directors personally under a DPN.
This can include commencing legal proceedings where personal liability remains outstanding, particularly for lockdown DPNs or overdue lodgements.
Can former directors still receive a DPN?
Yes.
Former directors can still be held liable for unpaid tax obligations incurred during their tenure, including situations where new directors or other directors of the company were involved during the relevant period.
Does a DOCA automatically remove DPN liability?
Not necessarily.
Parallel liability exists between the company and its directors under a DPN, meaning that if a DOCA pays the ATO a fraction of the debt, the remaining amount of a lockdown DPN debt could still be pursued from personal assets.
What is the timeline if I receive a DPN?
Timing is critical once a Director Penalty Notice (DPN) is issued.
The 21-day countdown to appoint a voluntary administrator begins the date the ATO posts the DPN letter. During that period, directors may still have options available depending on whether the DPN is lockdown or non-lockdown.
Upon the appointment of a voluntary administrator, directors lose all executive control of the business to an independent registered liquidator.
If a director fails to act on a DPN within the 21-day period, the ATO can initiate recovery actions against them, which may include garnishee notices or legal proceedings.
It is also important to understand that securing a generic corporate payment arrangement with the ATO does not remit personal liability under a DPN; the solution must involve an official insolvency appointment or full payment.
What happens if the DPN deadline expires?
If the remission period expires, directors may lose important options to reduce or remit personal liability.
The ATO may then pursue personal recovery action against directors.
Can liquidation stop a DPN?
In some non-lockdown DPN situations, appointing a liquidator within the required timeframe may help remit liability.
However, lockdown DPN liability may still remain.
More on this: Voluntary Administration vs Liquidation
Does small business restructuring (SBR) stop DPN liability?
Not necessarily.
Small business restructuring may help companies manage ATO debt, but it does not automatically remove personal director liability under a DPN.
Small Business Restructuring (SBR) allows companies with less than $1 million in liabilities to remit a non-lockdown DPN while retaining control of operations.
Directors should seek professional advice from a small business restructuring practitioner to address their company’s financial situation.
Does a DPN mean the director is bankrupt?
No.
However, unresolved DPN liabilities can increase the risk of personal insolvency, legal recovery action and potential bankruptcy proceedings.
Can multiple directors be liable under the same DPN?
Yes. Multiple directors of a company may become personally liable under the DPN regime depending on their involvement and timing.
What DPN defences are available to directors?
Directors have several options and defences available when facing a Director Penalty Notice (DPN), including illness and taking reasonable steps to address the company’s tax obligations.
If a director believes they have a valid defence against a DPN, they must submit their defence in writing to the ATO, including all relevant information and supporting documentation.
A director is not personally liable for a DPN if they can prove that they were not involved in the management of the company during the period the liability arose, but this may expose them to other personal liabilities.
Can directors be personally liable for unpaid superannuation?
Yes.
Directors may become personally liable for unpaid Superannuation Guarantee Charge (SGC) liabilities under the DPN regime.
