DIRECTOR PENALTY NOTICES

At O’Brien Palmer, we’ve been receiving a lot of questions about Director Penalty Notices (DPNs) – and for good reason. A DPN can make directors personally liable for company tax debts, and ignoring one can have severe financial consequences.

“If you receive a Director Penalty Notice, the worst thing you can do is ignore it. You have options, but the clock starts ticking the moment it’s issued, not when you receive it. That’s why taking immediate action is critical.”
Liam Bailey, Managing Partner at OBP

In this blog and video, we explain what a DPN is, what it means for you as a director, and how to protect yourself from personal liability.

WHAT IS A DIRECTOR PENALTY NOTICE?

A Director Penalty Notice (DPN) is a formal notice from the Australian Taxation Office (ATO) that makes a company director personally liable for unpaid tax debts, including:

  • Pay As You Go (PAYG) withholding tax
  • Superannuation Guarantee Charge (SGC)
  • Goods & Services Tax (GST)

The ATO issues DPNs to directors when a company fails to pay or report tax obligations. Once a DPN is issued, you have limited time to act before you become personally responsible for the company’s debt.

TYPES OF DIRECTOR PENALTY NOTICES:
21-DAY vs LOCKDOWN DPNS

There are two types of DPNs, and the type you receive determines your options.

21-Day DPN (Traditional DPN)

  • If your company has reported its tax obligations but hasn’t paid, you will receive a 21-day DPN.
  • You have 21 days from the date of issuance to:
          ✅ Pay the debt
          ✅ Appoint an administrator or liquidator
          ✅ Engage a small business restructuring practitioner
  • If you fail to act, you become personally liable for the debt.

Lockdown DPN (Immediate Liability)

  • If your company has not lodged tax returns within three months of the due date, you will receive a Lockdown DPN.
  • There is no 21-day grace period. Your only option is to pay the debt in full – or risk legal action from the ATO.

“A Lockdown DPN is serious. You can’t appoint an administrator or liquidator to avoid personal liability. If you get one, you must act immediately.”
Liam Bailey, Managing Partner at OBP

WHEN DOES THE 21-DAY COUNTDOWN BEGIN?

Many directors make the mistake of thinking they have time once they receive a DPN. But the clock starts ticking the day the ATO issues the notice – not when you open the letter.

DPNs are sent to the address registered with ASIC, and the ATO assumes you’ve received it. If your records are outdated or you don’t check your mail, you could lose critical days.

This is why quick action is essential.

What Happens If You Ignore a DPN?

If you fail to act, the ATO can take enforcement action against you personally, including:

  • Lawsuits – The ATO can sue you personally for the debt.
  • Garnishee Orders – The ATO can take money directly from your bank accounts.
  • Bankruptcy Proceedings – If you can’t pay, you risk bankruptcy.


Once a DPN is issued, the liability does not disappear if the company is liquidated – it stays with you as the director.

HOW TO AVOID PERSONAL LIABILITY FOR A DPN

The best way to protect yourself from a DPN is prevention.

Lodge tax returns on time – even if you can’t pay
Submit superannuation guarantee charge (SGC) statements within one month of the due date
Keep ASIC records up to date to ensure you receive critical notices
Engage with the ATO early if your company is struggling with tax payments

Even if you can’t pay the tax debt, lodging your returns on time buys you options. The worst thing you can do is delay.

DEFENCES TO A DIRECTOR PENALTY NOTICE

It is extremely difficult to fight a DPN, but there are two potential defences:

  • Illness – If you were too ill to manage the company at the time, you may have a defence. However, you must prove that your illness prevented you from fulfilling your duties.
  • Reasonable Steps – You must prove that you took all possible steps to prevent the company from incurring the debt or to comply with reporting obligations.

“Fighting a DPN is tough. The ATO issues thousands of them every month, and they rarely get it wrong. Your best defence is acting early and speaking to a professional.”
Liam Bailey, Managing Partner at OBP

WHAT SHOULD YOU DO IF YOU RECEIVE A DPN?

  1. DON’T IGNORE IT.
    The problem won’t go away. Every day that passes limits your options.

  2. GET PROFESSIONAL ADVICE.
    Speak to your accountant, an insolvency practitioner, or a tax debt lawyer immediately.

  3. ACT FAST.
    You only have 21 days (or less) to take action. The sooner you move, the more options you have.

DIRECTOR PENALTY NOTICE FAQS

We receive a lot of questions about Director Penalty Notices. Below are some of the most common queries we hear from company directors.

What does a Director Penalty Notice (DPN) include?

A DPN must:
✔ Be in writing
✔ Specify the amount of tax liability
✔ State that the director is personally responsible for the penalty
✔ Explain the circumstances in which the penalty may be remitted

To reduce the risk of receiving a DPN, directors should:
✔ Ensure all tax obligations are lodged and paid on time
Engage early with the ATO if struggling with payments
Avoid illegal phoenix activity (transferring assets to a new entity to escape debts)

The ATO may issue a DPN if a company:

  • Is unwilling to work with the ATO
  • Has repeatedly defaulted on agreed payment plans
  • Is unable to pay and has not taken steps to resolve the situation
  • Has been audited and found to be deliberately avoiding payment
  • Is suspected of engaging in phoenix activity

✔ Yes. If a company fails to pay superannuation and fails to lodge superannuation guarantee statements on time, directors become personally liable.
✔ The ATO can issue a Lockdown DPN to recover the unpaid super directly from directors.
✔ Even if the company goes into liquidation, directors remain personally responsible for unpaid super.

✔ Yes. Directors can be personally liable for unpaid:

  • Pay As You Go (PAYG) withholding tax
  • Superannuation Guarantee Charge (SGC)
  • Goods & Services Tax (GST)
  • Traditional (21-Day) DPN: Gives directors 21 days to pay the debt, appoint an administrator, liquidate the company, or restructure before becoming personally liable.
  • Lockdown DPN: Imposes instant personal liability if the company has failed to report tax obligations within three months of the due date.

It is possible to receive both types of notices for different debts:

  • Traditional DPN – For debts that were reported on time but remain unpaid
  • Lockdown DPN – For debts that were not reported within the required timeframes


This is why it’s critical to always lodge tax returns on time, even if you cannot pay in full.

✔ Yes, at O’Brien Palmer, we provide expert guidance on DPNs, tax disputes, and insolvency solutions. Whether you need help negotiating with the ATO, defending against personal liability, or restructuring your business, we can help.

📞 Call us on 02 9232 3322 for a confidential discussion about your options.

A Warning of Possible Director Penalty Notice is a preliminary notice from the ATO, alerting directors that they may soon be held personally liable for company tax debts.

If you receive this warning letter, it is a serious red flag that immediate action is needed to avoid personal financial consequences.

No, you should never liquidate a company solely to avoid tax obligations.

✔ If your company is genuinely insolvent, liquidation may be the best option.
⚠ However, this does not protect directors from personal liability under a Lockdown DPN.
📌 Always seek professional advice before making a decision.

Illegal phoenix activity happens when a company’s assets are transferred to a new entity without paying creditors, leaving the old company with unpaid debts.

The ATO is actively cracking down on phoenix activity, and directors involved in these schemes can face severe financial penalties, disqualification, and even criminal charges.

If you receive a DPN, time is already running out. You should:
Contact an insolvency expert or tax debt lawyer immediately
Determine if your notice is a 21-day DPN or a Lockdown DPN
Act quickly to explore your best options for resolution

GET IN TOUCH TODAY

At O’Brien Palmer, we help directors navigate Director Penalty Notices, negotiate with the ATO, and find the best possible outcome. A Director Penalty Notice is one of the most serious financial risks a company director can face. Ignoring it will not make it go away.

By acting quickly, seeking professional advice, and understanding your rights, you can protect your assets and explore solutions to manage the debt.

Watch our recent video on the
Personal Impact of Director Penalty Notices (DPN's)

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