COVID saw the many laws in regard to insolvency and bankruptcy suspended, but now the gate has been opened and the ATO is pursuing some long-term debt.

Directors of companies need to know that the Australian Tax Office (“ATO”) is cracking down on company debt owed to the ATO and has increased issuing directors of companies with director penalty notices (“DPN”). In 2022, the ATO issued almost 18,500 DPN’s to individual directors and 52,000 DPN warnings, these figures are predicted to increase in 2023 and 2024. So, what are DPN’s and what should you do if you receive one?

What is a DPN and what debts does it cover?

Directors of companies are responsible for ensuring that the company’s tax and super obligations are reported and paid on time to the ATO. If your company does not pay certain ATO liabilities by the due date, the ATO has a right to recover these amounts from you personally as a current or former company director.

To commence debt recovery, the ATO will issue a director with a DPN. A DPN is a notice sent to a director allowing the ATO to recover the company’s unpaid amounts from a director of a company personally. A DPN can make a director personally liable for three types of tax debts for a company including:

  1. pay as you go withholding;
  2. goods and services tax; and
  3. super guarantee charges.

There are two types of DPN’s that the ATO can issue to a person, these are either respectively known as:

  1. a 21-day DPN; or a
  2. Lockdown DPN.

21-Day DPN

A 21-Day DPN is the most common type of DPN issued. If a company has outstanding PAYG, Super or GST, then the ATO can send a 21-Day DPN giving notice to a director that within 21 days it must:

  1. make the company pay the debt;
  2. put the company into liquidation;
  3. put the company into voluntary administration; or
  4. come to a payment arrangement with the ATO.

The timeframe for the 21-Day DPN commences from the date it was issued from the ATO, not the date it was received, so directors should ensure they have their correct address registered with ASIC.

If no response is sent to the ATO within the 21 days, a director will become personally liable for some, if not all, of the tax debt of the company.

Lockdown DPN

A lockdown DPN can be issued where a company has not lodged its BAS or Superannuation Contribution Guarantee statements in time and has not paid the amounts due. It is in this instance, that as soon as the Lockdown DPN has been served on the director, they will become personally liable.

The only way for a director to comply with a Lockdown DPN is to cause the company to pay the underlying debt, or to pay the director penalty directly.

21-Day DPN’s and Lockdown DPN’s can also be joined together in one letter if the ATO considers appropriate.


There are certain circumstances in which a director will not be held liable for directors penalties. These include where:

  1. a director did not take part (and it would have been unreasonable to expect the director to take part) in the management of the company during the relevant period because of illness (or another acceptable reason);
  2. the director took all reasonable steps, unless there were no reasonable steps the director could have taken, to ensure that one of the following happened:
    1. the company paid the amount outstanding;
    2. an administrator was appointed to the company;
    3. a small business restructuring practitioner was appointed to the company; or
    4. the directors began winding up the company within the meaning of the Corporations Act 2001.

Importantly, the Courts have held that in raising a defence to a DPN:

  1. the defences must be proved for the entire period the director was under their obligation;
  2. it is not a defence if a director relied on others (including fellow directors and professional advisors) to ensure their obligations were met; and
  3. defences must cover the whole period between the breach of the obligation on the due date and the expiry of the notice.

Further, a director’s non-participation in the management of the company will usually involve a breach of the duty, regardless of whether the director was aware of this or not.


If a director of a company does not comply with the requirements of a DPN, or does not raise an applicable defence as outlined above, the ATO may collect the tax debt from either the company or its directors personally through various means of enforcement. These can be from either:

  1. garnishing of bank accounts;
  2. offsetting tax credits;
  3. the issuing of a statutory demand;
  4. winding up proceedings; or
  5. commencing other forms of recovery proceedings.

How to avoid receiving a DPN

To avoid receiving a DPN in the first instance, directors should avoid the circumstances which give the ATO grounds to issue a DPN. The purpose of DPN’s is to encourage directors to ensure a company is complying with ATO requirements. We recommend that as a director, you should be:

  1. consistently familiarising yourself with the company’s financial position and monitoring when lodgements are due;
  2. ensure your contact details are up to date with the ATO and ASIC for the purposes of receiving notices; and
  3. seek accounting legal or insolvency advice if you consider the company cannot meet company payments.

If you have received a DPN or are concerned you may receive one, please contact one of our commercial lawyers at Lynn and Brown and we will able to assist you.

About the Authors: This article has been co-authored by Chanelle Kane and Steven Brown. Chanelle has been in the industry since 2013 and graduated with a Bachelor of Laws in 2020.  Chanelle completed the Graduate Diploma of Legal Practice with the College of Law in 2020 and was awarded the 2020 PLT Professional Excellence Award for the cohort.  Chanelle was admitted to practice in the Supreme Court of Western Australia in November 2020 and to the High Court of Australia in January 2021. Steven is a Perth lawyer and director, and has over 20 years’ experience in legal practice and practices in commercial law, dispute resolution and estate planning.


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