Changes to Director Penalty Notices do not allow payment arrangements

After putting collections on hold during the depths of the COVID-19 pandemic, the Australian Taxation Office (ATO) has returned to recovering debts, including issuing Director Penalty Notices (DPN's). However, in a recent change enacted by the ATO, directors are no longer able to avoid personal liability for a penalty pursuant to a DPN by entering into a payment arrangement with the ATO.

It appears the ATO may be seeking to deter the practice of directors avoiding personal liability for a company's tax debt by negotiating a payment plan with the ATO, thereby keeping the liability with the company (and not with the director).

Previously, directors who had been served with a DPN could discharge their personal liability for the debt by any one of the following options (entered into within the 21-day period):

1. the company discharging its tax liability by paying the amount outstanding;
2. the company going into administration;
3. the company going into liquidation; or
4. entering into a payment arrangement with the ATO in accordance with section 255-15 in Schedule 1 to the Taxation Administration Act 1953  (Cth).

However, as a result of the recent changes to the DPN regime, the options now available to director are as follows:

1. the company discharging its tax liability by paying the amount outstanding;
2. the company going into administration;
3. the company going into liquidation; or
4. the company appointing a small business restructuring practitioner (SBRP).

Essentially, a SBRP is a format of insolvency appointment which can be described as a simplified debt restructuring or voluntary administration process intended to better serve small businesses.

The result of these changes to the DPN regime will likely be more companies being put into administration and/or liquidation.

We suggest that company directors ensure they confirm and update their personal address kept on record with ASIC as this is where a DPN will be sent. Once delivered, a director must act on a DPN within 21 days of the date of the notice which, considering postage delays in recent years, may leave very little time for a director to act.

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