What is a director penalty notice?
When your business is struggling, business owners can often overlook the personal risks
When your company has failed to pay its taxation obligations, such as pay as you go withholding requirements (PAYG) or superannuation guarantee charge liabilities (SGC), the Australian Taxation Office (ATO) has the power to issue to directors of that company a Director Penalty Notice (DPN). A DPN will result in the directors of a company becoming personally and individually liable for any outstanding PAYG and SGC as well as any accumulated interest and penalties. All directors, including directors who have resigned, can receive a DPN notice and become personally liable.
There are two types of DPN notices: A Traditional Notice and a Lockdown Penalty Notice.
If you have received a Traditional Notice, a director has 21 days from the issue date on the notice to respond to the DPN. If the director fails to respond within 21 days, that director and all directors will become personally liable for the notice amount and will be sued by the ATO. So, this means that the entire debt due and payable must be paid within 21 days. Unfortunately, a payment plan will not help director’s avoid personal liability if the debt is not paid within 21 days because the notice amount continues to be due and payable even if you enter into a payment plan. Having said this, if a company honors its payment plan then the ATO is probably not likely to chase up directors after the 21 days. That is why negotiations remain crucial. Insolvit can advise you on the best strategy taking into account your company’s insolvency and insolvent trading risks.
If your company cannot pay the notice amount, directors can avoid personal liability by entering their company into voluntary administration, liquidation or by appoint a small business restructuring practitioner.
Similar to a Traditional Notice, a Lockdown Penalty Notice is issued when a company fails pay their PAYG or SGC and fails to lodge company tax returns within 3 months. Here, the only way for directors to avoid personal liability is by either paying the debt in full or by establishing a statutory defence. Unlike a Traditional Notice, directors cannot avoid personal liability by entering their company into external administration, such as voluntary administration or liquidation.
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Knowledge can empower you to make the right decisions
Liquidation
When a company is placed into liquidation, this is generally occurs because the company is insolvent and because the company has no realistic chance of resolving its financial distress and becomes necessary to avoid additional financial and legal risks. This is usually because the financial situation of the business is dire and there is no prospect of restructuring or salvaging the business. A liquidation should be a last resort, and there are opportunities to avoid such a consequence. Sometimes, your creditors will have the power to liquidate your company.
Insolvent Trading
if your company incurs a new debt at a time where the company is insolvent, or where it reasonable to suspect that your company is insolvent or could become insolvent because, you and other directors could be engaged in insolvent trading. Learn about what this means and how to avoid this.
Voluntary Administration
Sometimes, risks of insolvency and liquidation might be avoided early via a corporate restructure or voluntary administration. A corporate restructure can involve making changes to the legal and operational set up of your company. For example, this might include changes to ownership, management, leadership, shareholders, operations & policy, employee structures & roles, among other things. Voluntary administration involves the appointment of a voluntary administrator with the view to formally restructuring of or the sale of the business. Learn more.
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When your business or future is on the line, it can be hard to know who you can rely on for help. Cost also plays a part. We know that, sometimes, it can be hard to know who to trust. That is why we are open, clear and straight forward with you when it comes to what works, and what doesn’t work.
Our experience is important because we have a deep understanding of your challenges. We know, and are qualified to give you advice on, how bankruptcy and insolvency laws operate, what strategies actually work and how these can effect your planning. We will work with you to produce a plan which is commercially and legally viable. We do not gamble with your business, or your future.