You Got A Directors Penalty Notice, What Now?
Getting a nasty surprise in the mail in the form of a Directors Penalty Notice can cause anyone distress. At first, the situation may seem daunting and difficult to understand. No matter how overwhelmed you might feel when you first receive a Directors Penalty Notice the worst thing you can do is ignore it. If you get immediate advice you can avoid a lot of financial pain. If you have received a Directors Penalty Notice, Insolve expert Trish Talty has some advice that can help answer some burning questions you may have.
What is the Directors Penalty Notice?
As director of a company, you are responsible for making sure the company meets its Pay As You Go Tax (PAYG) and Superannuation Guarantee Charge (SGC) obligations. If your company fails to meet these payments in full by the due date you will become personally liable for director penalties equal to the unpaid amount. A Directors Penalty Notice is a notice from the Australian Tax Office (ATO) that can make you, as the director of a company, personally liable for the tax debts of that company. These penalty notices have a very strict expiry date. For a traditional Directors Penalty Notice, a director is given 21 days to take action to avoid personal liability. This is why as a director it is critical that you have the correct details recorded with the ASIC. A director cannot use the defence that a Directors Penalty Notice was sent to the wrong address. Trish says “If no action is taken by the expiry date the ATO will then go to the next step which may be to bankrupt a director.” This penalty date begins when the ATO sends out the penalty notice, not when you receive it.
In some cases, a Directors Penalty Notice can make a director automatically personally liable for PAYG and SGC. This is known as ‘Lockdown DPN’. There is no opportunity to avoid this liability once the DPN is served on the director.
Who Can Receive a Directors Penalty Notice?
It is important to note that you don’t have to have been a company director for long to receive a Directors Penalty Notice. According to Trish, the ATO is able to issue DPN to a director who has recently joined the board provided they have held that position for more than 30 days. This includes shadow and de-facto directors. You can also receive a DPN as a director who has resigned before the issuance of any notices.
Why am I getting a Directors Penalty Notice?
According to Trish one of the main reasons for getting this penalty notice is unpaid employee entitlements. Trish explains that “Superannuation is one of the more common reasons.” Similarly, your business could be falling behind on Pay As You Go Tax. If you have received a DPN Lockdown Notice it is likely your company has failed to lodge its business activity statements also know as ‘BAS’. You are also personally liable as a director for any debts incurred after your company goes into insolvency. As Trish points out the reasons for receiving the notice can vary, she says “By seeking advice you will find out you have defences in that.”
What Can I Do?
The first thing to know is what not to do. Trish points out that one of the worst things to do is to ignore the penalty notice. “Nine times out of ten nobody looks at it, and then we get contacted by a lawyer two weeks after the expiry date. You can make arrangements if you do something before it expires.”
The first step that you should take, as soon as you receive the notice, is to contact an advisor. Trish insists that seeking advice early is the best thing to do because any errors made by the Australian Tax Office can be identified and resolved. If not, other arrangements can be made with the ATO in order to pay back the debt. In a case where arrangements cannot be made Trish points to other options to avoid personal liability. “If there is no chance [of making an arrangement] the company is then likely to be insolvent, they may need to consider other options, such as winding up the company.”
Contacting an advisor early will give you the opportunity to establish a potential defence for your Directors Penalty Notice. If you can establish a legitimate defence you will not be liable for a directors penalty. For example you might be able to prove you were unable to manage the company at the time of incurring the liability due to illness. Some other potential defences include proving that as a director you took all reasonable steps to;
- Make the company meet its obligation to pay
- Appoint an administrator
- Wind up the company in liquidation
As Insolve expert Trish Talty makes very clear, the worst thing you can do when you receive a Directors Penalty Notice is ignore it and hope it goes away. The earlier you seek professional advice the better chance you have of getting ahead of the problem. If you have received a Directions Penalty Notice, speak to the experts at Insolve today.