7 Things Directors Should Know About Director Penalty Notices
A Director Penalty Notice can arrive without warning. Directors have just 21 days to act on one before they become personally liable for company tax and super debts.
In the 2024 financial year, the Australian Taxation Office (ATO) issued almost 27,000 Director Penalty Notices (DPNs) for an aggregate debt of $4.4 billion (ATO Director Penalties, 2025).
Director penalties are a key part of the ATO’s tougher debt collection strategy. Tax debts have grown by $40 billion since 2018, with small businesses owing more than 65% of the $55.9 billion total (ATO Debt Recovery Statistics, 2025). If you are a company director, understanding the DPN regime is critical to protecting yourself, your business and your personal assets.
Empirical Legal works closely with business owners at startups, scaleups and small and medium enterprises, combining legal, technical and commercial expertise to deliver practical advice on corporate compliance and reducing risk. We act as your external general counsel, ensuring your business stays on top of its financial, governance and restructuring obligations.
This guide breaks down the seven most important things you need to know about DPNs, supported by up-to-date ATO and ASIC statistics, so you can act quickly and decisively.
Summary
Directors must know:
What a DPN is
Personal liability for PAYG, GST and super debts.Types of DPNs
Lockdown and non-lockdown, with different options.When liability starts
It can apply from your first day as a director.What to do within 21 days
Payment, restructuring or administration.The strict timelines for remission
Act within three months or lose options.The ATO’s recovery powers
Garnishee notices, offsets, court action.The available defences
Illness, reasonable steps or arguable interpretation of law.
1. Understand What a DPN Is
A Director Penalty Notice makes you personally liable for your company’s unpaid Pay-As-You-Go (PAYG) withholding, Goods and Services Tax (GST) and Superannuation Guarantee Charge (SGC) debts.
The ATO can issue a DPN to a current or former director once these debts are overdue (ATO Director Penalties, 2025). Once issued, you have 21 days from the date on the notice, not the date you receive it, to take action. If you do nothing, the ATO can recover the debt directly from you.
The liability is parallel: if there are multiple directors, each is liable for the same amount. A payment by one director reduces the liability for all directors and the company.
2. Recognise the Two Types of DPNs
There are two categories:
Lockdown DPN
When Issued: Lodgements over 3 months late for BAS or SGC statements
Options to Avoid Personal Liability: Only option is to pay the debt in full within 21 days
Non-Lockdown DPN
When Issued: Lodgements on time (or within 3 months)
Options to Avoid Personal Liability: Pay in full OR appoint a voluntary administrator, small business restructuring practitioner or liquidator within 21 days
A lockdown DPN is the harshest. If your company lodges its BAS more than three months late, you lose all options except full payment. Non-lockdown DPNs allow alternative insolvency or restructuring appointments, which can preserve business value and director protections.
3. Know When Liability Starts
Liability can attach almost immediately after you become a director. If you are appointed while the company already has unpaid PAYG, GST or SGC debts, you have 30 days to ensure the company either pays the debt or enters administration, restructuring or liquidation (ATO Director Penalties, 2025).
Resigning doesn’t automatically protect you. You remain liable for debts that:
were due before your resignation; or
became due after your resignation if the relevant reporting period started while you were a director.
For example, if someone became a director on 2 June 2024, resigned on 13 June but the company failed to pay $50,000 in PAYG and GST within 30 days, they would remain personally liable for the full amount (ATO Director Penalties, 2025).
4. Act Within 21 Days of a DPN
The clock starts when the ATO posts the DPN to your ASIC-registered address, not when you open it. Directors who have not updated their ASIC address risk missing the notice entirely and losing the chance to act.
Within the 21-day window, you must:
Pay the debt in full; or
Appoint an external administrator, small business restructuring practitioner or liquidator (non-lockdown only).
Failure to act leads directly to personal recovery action, which can include garnishee notices, offsets against your tax credits or legal proceedings.
5. Understand the Strict Remission Timelines
Whether you can have a penalty remitted depends on how quickly debts are reported:
Reported within 3 months → Payment, administration, restructuring or liquidation
Reported after 3 months → Full payment only
Unreported → Full payment only
For SGC debts, the deadline is the due date of the SGC statement. Late reporting removes options and increases personal exposure for company directors.
6. Be Aware of the ATO’s Recovery Powers
The ATO has expanded its debt collection approach since 2023. In 2024-25, 64% of Small Business Debt Helpline cases in June related to ATO debts (ATO Debt Recovery Statistics, 2025). Calls to the ATO’s hardship line increased from 12,102 in 2021 to 23,291 in 2024.
If you ignore a DPN, the ATO can:
Issue garnishee notices to your bank, employer or debtors;
Offset tax credits or refunds against the penalty; or
File court proceedings leading to bankruptcy or winding-up orders.
Insolvency trends show external administrations increased by 39% in 2023-24 compared to the year before, with construction, accommodation/food and other services making up over half of all cases (ASIC Annual Insolvency Statistics, 2024).
7. Know Your Defences and Their Limits
You have a defence if, for the entire period since the liability arose:
You did not participate in management due to illness or other acceptable reason; or
You took all reasonable steps to ensure payment or insolvency/restructuring action occurred; or
For unpaid SGC or GST only, the company took a reasonably arguable position under the law and applied it with reasonable care (ATO Director Penalties, 2025).
Courts have ruled that:
Relying on others (including accountants or co-directors) is not a defence (Deputy Commissioner of Taxation v Clark, 2003); and
Resigning does not remove liability (Canty v DCT, 2005).
Defences must be lodged in writing within 60 days of recovery action or garnishee notice.
Quick Reference on DPN Timeframes
Appointment as Director (with existing debts)
Deadline: 30 days
Available Actions: Pay in full OR appoint administrator/restructuring practitioner/liquidator
Lodgement on time, debt unpaid
Deadline: 3 months from due date
Available Actions: Pay in full OR appoint administrator/restructuring practitioner/liquidator
Lodgement > 3 months late
Deadline: N/A
Available Actions: Pay in full only
DPN issued
Deadline: 21 days from date of notice
Available Actions: Pay in full (lockdown) OR insolvency/restructuring (non-lockdown)
Key Takeaways
DPNs give the ATO the power to make directors personally liable for company tax and super debts. With the ATO’s increased enforcement, issuing $4.4 billion in DPNs in 2024 alone (ATO Director Penalties, 2025), directors must stay alert to lodgement deadlines, act within the 21-day DPN window and understand the narrow grounds for defence.
If you are a director, the most effective protection is timely reporting and payment of BAS, GST and superannuation obligations. Late lodgement removes key options and can leave you with no escape from personal liability except full payment.
Empirical Legal is a corporate advisory and technology law firm for startups, scaleups and SMEs.
We combine legal, technology, and business experience and expertise to deliver practical, actionable advice and solutions.
If you receive a DPN or suspect one may be coming, reach out to Empirical Legal immediately. The earlier we are involved, the more options you will have to protect both your business and your personal assets.
Reach out to Empirical Legal today.