Unfortunately, it’s a common scenario: a director forgets to notify ASIC of their change of address, and the consequences can be devastating. What seems like a small oversight can lead to severe financial impacts, where applicable late fees from ASIC pale in comparison.
To explain, further we need to understand what a Directors Penalty Notice (DPN) is. A DPN makes a director personally liable for corporate debt. There are two types:
- Lockdown DPN: Makes a director personally liable if a BAS is lodged more than 3 months late or if the superannuation guarantee form is not lodged by the due date.
- Non-Lockdown DPN: Requires the company to pay the debt or enter insolvency within 21 days. If not, the director becomes personally liable for the tax or superannuation debt outlined in the DPN.
The Commissioner of Taxation can issue a DPN simply by leaving it at or posting it to the director’s registered residential address, according to ASIC records. The ATO doesn’t need to confirm that the director received the notice—the 21-day period starts from the date of the DPN, not when it is received.
The ATO isn’t required to personally track down a director to serve the DPN. If the notice is sent to an old address, it’s still considered “given,” even if the director never sees it.
We’ve witnessed many directors becoming personally liable for their company’s debts simply because the Non-Lockdown DPN was sent to an outdated address and expired before they had the chance to respond. In some cases, this has led to millions of dollars in personal liability.
The lesson? You may end up with a grateful client by simply advising them to keep their address updated with ASIC. This small step can make the difference between manageable options and catastrophic personal liability.
In addition, it also pays to ensure your clients regularly check their MyGov portal, where prior warnings of DPNs may be posted, which can buy your client more than 21 days to take action.
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A Case Study Illustration
A client was referred to us by his accountant after noticing two Director Penalty Notices (DPNs) on the client’s MyGov portal. To determine how to resolve the situation, we needed to review the actual DPNs, as there are two types: one that can be resolved by specific actions and one that cannot, as outlined earlier.
The director mentioned he had not received any physical copies in the mail, and we discovered that the DPNs were already 15 days old. Upon investigation, we found that both notices were of the non-lockdown type, which meant the director could still take action. However, the issue arose because the director had changed his address but failed to update his details with ASIC, so the DPNs were sent to his old address.
The critical point with DPNs is that the 21-day response window starts from the date of issue, not when the notice is received. This left our client with only 6 days to act by the time he contacted us. Fortunately, thanks to the accountant’s vigilance and our swift action, we helped the director avoid personal liability and saved him $794,000!
If you have a client who has received a DPN, it’s crucial to take immediate action. If you are unsure of the next steps or need guidance, please contact our team right away.
Should you have clients or associates that you know are struggling with financial issues or need assistance in reviewing their business affairs in preparation for what’s around the corner, our team of Strategists would be pleased to discuss options that are available on how to best design and implement insolvency strategies. Contact us now on p. 1300 765 080 | ua.mo1731819275c.arj1731819275d@ofn1731819275i1731819275
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Phoenixing is another name of business restructure. Read more about business restructures and when this can be an option for you.
