Imagine this: It’s a typical Tuesday morning. You’re sipping your coffee, checking emails, when suddenly your heart skips a beat. There it is – an official notice from the Australian Taxation Office. But this isn’t just any correspondence – it’s a Director Penalty Notice (DPN). In an instant, your company’s tax problems have become your personal nightmare.

You’re not alone. From July 2023 to February 2024, a staggering 13,454 directors received these notices. But what exactly is a DPN, and why should it send a chill down every director’s spine?

When company debts become personal: the DPN explained

A DPN is the ATO’s most powerful weapon in its tax recovery arsenal. Think of it as the tax office’s way of saying, “If your company won’t pay, you will.” With unpaid tax debts reaching a record $50 billion (up from $35 billion pre-Covid), the ATO has dramatically ramped up its use of these notices.

A DPN can make you personally liable for PAYG withholding tax, SGC and GST.

The two faces of DPNs: lockdown vs non-lockdown

Not all DPNs are created equal. There are two varieties, and the difference between them could mean everything:

The Lockdown DPN: The Point of No Return

If your company has failed to both pay AND report its tax obligations on time, you’ll receive what’s known as a “lockdown” DPN. This is the financial equivalent of being backed into a corner with no escape route:

• You’re immediately personally liable
• You can’t appoint an administrator to escape
• The only way out is to pay the full amount

The Non-lockdown DPN: Your 21-Day Lifeline

If you’ve at least lodged your returns (but haven’t paid), you’ll receive a “non-lockdown” DPN. This gives you a critical 21-day window to take action:

• Pay the debt (obviously the preferred option for the ATO)
• Appoint a Voluntary Administrator
• Engage a Small Business Restructuring Practitioner
• Put the company into liquidation

Miss this 21-day deadline, and you’re personally on the hook for the entire amount.

What to do when a DPN lands in your inbox

The worst thing you can do is nothing. Here’s your action plan:

1. Don’t Panic, But Don’t Delay Call us. This isn’t the time for DIY solutions or hoping the problem will disappear.
2. Understand Your Options Different DPNs require different responses. What works for a non-lockdown DPN won’t help with a lockdown notice.
3. Consider Restructuring The Small Business Restructuring Process under Part 5.3B of the Corporations Act has shown a remarkable 92% success rate. It could be your lifeline.

The silver lining: a new approach to tax debt

It’s not all doom and gloom. The ATO has recognised that businesses face challenges and has developed more flexible approaches to debt recovery to be able to accept less than full payment, and extinguish the remainder of the debt. The Small Business Restructuring process is one example. It allows businesses to continue operating while addressing their tax obligations in a manageable way.

Your next steps

We understand the challenges businesses face when dealing with DPNs. David Levi is a Registered Liquidator and can act as an Administrator, Liquidator or SBRP. Reach out for a free consultation on 0418 602 466 for a confidential discussion.