The Australian Taxation Office (ATO) has significantly ramped up its use of Director Penalty Notices (DPNs) recently, issuing a staggering 26,702 DPNs in FY2023-24, amounting to $4.4 billion in liabilities.
Former directors of deregistered companies are among those targeted — who may be caught off guard by liabilities they believed resolved during the business closure process.
For former business owners, the stakes are high: personal assets could be at risk, even years after the company ceases to exist. This article explains how DPNs can apply to deregistered companies, why the ATO is stepping up its recovery efforts, and how to avoid being blindsided.
Directors Can Still Receive DPNs After Deregistration
Many directors believe that once their company is deregistered, they are no longer responsible for its debts. Unfortunately, this is a common misconception.
Deregistration does not erase a director’s personal liability for certain debts, particularly unpaid superannuation guarantee charges (SGC) and PAYG withholding. If these obligations remain outstanding at the time of deregistration, the ATO can issue a lockdown DPN. This type of DPN cannot be remitted, even if the company has been wound up.
Directors are held personally liable for debts that were overdue before deregistration — unless they took specific actions, such as appointing a liquidator or entering voluntary administration to resolve the company’s liabilities.
Lockdown DPNs are enforceable regardless of a company’s operational status, making proper deregistration essential to avoid future financial risks.
The ATO's Debt Recovery Strategy
The ATO’s recovery efforts have intensified post-pandemic, aiming to address its $50 billion collectable debt portfolio. Lockdown DPNs now dominate its enforcement actions, reflecting a significant shift in strategy.
Recent data shows a stark shift in the use of Director Penalty Notices (DPNs), with a 70-30 split between lockdown and standard DPNs — a dramatic change from the pre-pandemic ratio of 20-80. This shift underscores the ATO’s intensified focus on recovering legacy debts, particularly unpaid superannuation, which accounts for over $2 billion of the collectable debt.
Directors of deregistered companies are especially vulnerable. These notices frequently target debts accrued during the COVID-19 trading downturns, with some directors receiving DPNs for liabilities incurred as far back as eight years ago.
The ATO’s reliance on lockdown DPNs signals its commitment to ensuring compliance, but it also underscores the importance of resolving debts before deregistration.
What Happens If You Receive a DPN After Deregistration?
If a director receives a DPN for a deregistered company, their options are limited and costly.
First, the director must apply to the court to reinstate the company — a process involving legal fees and administrative hurdles.
After reinstatement, the company must be liquidated to resolve the outstanding debts. This step requires engaging a liquidator, further adding to the cost.
These actions are both time-sensitive and financially draining — which is particularly stressful if personal resources are already stretched due to the financial difficulties of the deregistered company.
Remember, ignoring a lockdown DPN is not an option; the sooner you act, the better your chances of mitigating financial consequences.
Avoiding DPNs With Proper Deregistration
The best way to avoid unexpected DPNs is to engage an insolvency practitioner before deregistering your company. Here’s how they can help:
Identify and Resolve Liabilities
An insolvency practitioner will assess outstanding debts, including tax and superannuation obligations, ensuring these are addressed before deregistration.
Guide You Through Compliance
They ensure that all necessary documentation, such as SGC and BAS statements are lodged on time to prevent lockdown DPNs.
Oversee Liquidation or Administration
If required, they can place the company into liquidation, protecting directors from personal liability for outstanding debts.
Proper planning and professional guidance during deregistration can save directors from the financial and emotional toll of unexpected DPNs.
Future-Proof Your Finances Against DPNs
Directors of deregistered companies must understand that they remain personally liable for certain debts, particularly under lockdown Director Penalty Notices (DPNs).
The ATO’s growing reliance on DPNs underscores the importance of vigilance among former business owners. If a DPN is issued post-deregistration, reinstating the company and initiating liquidation may be the only recourse.
To prevent these risks, engaging an insolvency practitioner during the deregistration process is critical. Their expertise ensures the company’s closure is managed correctly, avoiding potential liabilities in the future.
Navigating DPNs and the complexities of business deregistration can be daunting, but you don’t have to face it alone. At SALEA Advisory, we specialise in helping directors manage their tax obligations and protect their personal assets.
If you’re concerned about outstanding debts or the potential for DPNs, contact us today for tailored advice and support.
Let us help you secure peace of mind and safeguard your financial future.
