Directors are personally liable for particular company
tax debts, including superannuation liabilities and PAYG
Before enforcing the debt against the directors, the
Commissioner is required to send a director penalty notice
One of the defences available to directors challenging a DPN is
that they took all reasonable steps to ensure:
the company complied with its obligation, that is, to pay the
an administrator was appointed over the company; or
the winding up of the company had begun,
or that there were no reasonable steps they could have taken to
ensure that any of these things occurred.
The question often arises as to whether particular acts amount
to 'reasonable steps'. The Queensland Court of Appeal has
recently had to consider this test in the context of an appeal
against a summary judgment in favour of the Commissioner.
What happened in Shaw v Deputy Commissioner of Taxation;
Rablin v Deputy Commissioner of Taxation  QCA 275?
The director argued that they took all reasonable steps to
ensure that the company complied with its obligation to pay PAYG
withholding amounts and that, if they didn't, there were no
reasonable steps that could have been taken.
The ATO applied for summary judgment against the directors,
which the Court granted. The director then appealed that
The directors argued that the reasonable steps they took to
ensure that the company complied with its obligations included:
attempts to obtain finance and extend the company's current
engaging a specialist business consultancy firm for advice and
to assist with negotiations with the bank; and
later, when the negotiations with the bank failed, beginning
the process to wind up the company.
The Court of Appeal found that the directors were not obliged to
take steps to ensure that the company was placed into
administration or liquidation, when they were taking reasonable
steps to ensure that the company paid its tax debts.
It was reasonable for the directors to pursue the option of
obtaining third party finance for as long as it was reasonable for
the directors to expect that the finance would have been available
to the company to pay its tax debts.
The evidence that the directors relied on was sufficient to show
that a defence under the legislation was potentially available
– therefore, the test for summary judgment failed and the
Court of Appeal allowed the directors' appeal and set aside the
What should you do if you receive a DPN?
As a director, it is important to remember that you can be
personally liable for some tax debts.
It is vital that you take all steps to ensure that the company
complies with its tax obligations, including all reporting
If you do receive a DPN from the ATO, it is important that you
act quickly and form a strategy to respond to the DPN and set out
any relevant defences.
It is also important that you compile evidence of all of the
steps that you took to ensure that the company complied with its
obligation or caused an administrator or liquidator to be
In some cases it may be possible to prevent the Commissioner
from starting court proceedings at all. Our clients have
experienced that these cases often involve engaging with the
Commissioner at an early stage and detailing any defences that are
Cooper Grace Ward is a leading Australian law firm based in
This publication is for information only and is not legal
advice. You should obtain advice that is specific to your
circumstances and not rely on this publication as legal advice. If
there are any issues you would like us to advise you on arising
from this publication, please contact Cooper Grace Ward
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