During 2022, the ATO issued almost 18,500 director penalty notices (DPNs) to directors of Australian companies. A further 52,000 directors received warnings, and the ATO has started referring certain debtors to credit reporting agencies. This is indicative of a significant uptick in collections activity following a period of relative leniency during the COVID-19 pandemic.

Accordingly it is an appropriate time for a brief refresher on the DPN regime for directors and their advisers.

What is a DPN?

Company directors are responsible for ensuring that a company's tax and superannuation obligations are reported and paid on time. When a company fails to meet its tax debt payment obligations, the ATO can recover unpaid amounts from the company's directors personally by issuing the directors a DPN. A DPN is typically a 2 page standard-form letter sent to directors at their address registered with ASIC. The DPN will also be published on the ATO portal.

The ATO can recover the amounts due under the DPN by:

  • issuing garnishee notices, which permit the ATO to deduct amounts from director's bank accounts or wages;
  • offsetting the amount payable under the DPN against tax credits otherwise available to the director; or
  • by commencing legal proceedings against the director in respect of the debt.

It is important for directors to understand that where there are multiple directors of a company, the DPN regime makes each director joint and severally liable for the company's tax debt. This means the ATO can focus on the director they consider has the best ability to pay, rather than pursuing each director for an equal "share" of the company's tax debt.

What are the options once a DPN is issued?

There are two types of DPN, lockdown and non-lockdown. What options are open to the directors within the 21 day compliance period will depend on the type of notice received.

A. Non-lockdown DPNs

A non-lockdown DPN is issued in circumstances where the company has lodged its business activity statements, instalment activity statements and superannuation guarantee charge statements within the relevant time periods, but has not made the required payments.

The options available to a director under a non-lockdown DPN during the 21 day period are:

  • cause the company to pay the underlying tax debt;
  • pay the penalty set out in the DPN;
  • put the company into voluntary administration;
  • appoint a small business restructuring practitioner;
  • put the company into liquidation.

Taking any of the last three steps within the 21 day period will avoid personal liability for the director under a non-lockdown DPN.

Critically, following a recent change in ATO policy, it is no longer possible for a director to escape personal liability under a DPN by causing the company to enter into a payment arrangement with the ATO.

B. Lockdown DPNs

Lockdown DPNs are issued where, in addition to having unpaid tax debts, a company has failed to lodge its business activity statements, instalment activity statements and superannuation guarantee charge statements within the relevant time periods.

It is not possible for a director issued with a lockdown DPN to escape personal liability by putting the company into administration or liquidation or appointing a small business restructuring practitioner.


Directors will not be liable under a DPN if they can establish one of the limited defences:

  • That they did not take part in the management of the company during the relevant period due to illness or "for some other good reason" and it would have been unreasonable to expect them to take part.
  • The director "took all reasonable steps" to ensure that the company paid its outstanding tax debts or appointed a voluntary administrator, small business restructuring practitioner or liquidator.
  • In relation to outstanding net SGC and GST obligations only, the company adopted a reasonably arguable position, and applied reasonable care, in applying the relevant legislation.

Recent cases have shown these defences, which import concepts of reasonableness, are difficult to make out.

Key takeaways

  • Prevention is better than a cure, and engagement with the ATO is crucial. Whether or not to issue a DPN remains at the discretion of the ATO. The ATO is far more likely to issue a DPN where the company and its directors refuse to engage.
  • Directors must ensure that personal and company information remains current. The 21 day period to comply with a DPN is short, and time will commence when it is sent by the ATO, not when it is received by the director. Having it sent to an old address will not be an effective defence.
  • Even if the company is unable to immediately pay its tax debts, it remains important to comply with reporting obligations. There are far more options available to directors in relation to non-lockdown DPNs.
  • Directors must be aware that they cannot simply leave management of the company to others, and should ensure they are aware of the company's financial position and its compliance with reporting obligations. Failure to do so will likely not be a defence to a DPN.
  • DPNs can be issued to new directors, who may have limited information about the existence or extent of any taxation liabilities or former directors in relation to debts incurred during their time as directors.
  • In circumstances where a company's tax debt is paid by one director following receipt of a DPN, that director will have a right of indemnity and contribution from the company, as well as the other directors.
  • There are important distinctions between a director lending a company money to pay the underlying tax debt and the director paying the penalty amount directly to the ATO. If the company goes into administration or liquidation within 6 months after the company makes a payment to the ATO then that payment may be a preference and recoverable from the ATO by a liquidator. In those circumstances the legislation requires a director to indemnify the ATO for the preference, meaning that a director may effectively be paying twice. It is important to seek professional advice about how to comply with a DPN in order to avoid or manage such risk.
  • A restructure of a company's affairs achieved through a voluntary administration or small business restructuring plan may save a company's business, as well as limiting a director's exposure to personal liability under a non-lockdown DPN. Directors should be aware of and consider all options if a company appears at risk of insolvency.

Once a DPN has been issued, professional advice should be sought immediately.

Pointon Partners works with clients and their referring accountants in relation to DPN issues. We are also able to facilitate confidential, no-obligation referrals with a broad network of reputable administrators, small business restructuring practitioners and liquidators.

Please get in touch with Pointon Partners' disputes or business recovery & insolvency lawyers with any queries regarding this article.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.