So You’ve Got a Director Penalty Notice? Here’s What Happens Next (and What To Do About It)

Let’s talk about something most small-business owners would rather run barefoot over Lego blocks than think about: Director Penalty Notices — or DPNs.

They’re the ATO’s way of saying: “ Your company owes tax — and if you don’t fix this, we’re coming to you next.”

It’s serious stuff. But it’s also something you can understand without a law degree, so let’s break it down.

What on Earth Is a DPN?

Think of a DPN like a speeding fine for directors. When your company doesn’t pay things like:

• PAYG withholding
  
• Superannuation
  
• GST
  

…the ATO has the power to tap you on the shoulder and say, “You’re personally on the hook for this now.”

And yes, personally means your own wallet, not the company’s.

Two Flavours of DPN: One’s Bad, the Other’s Worse

There are two types:

1. The “Non-Lockdown” DPN

This is the less terrible one.

You get it when you’ve lodged your BAS and super forms on time, even if you couldn’t pay.
You have 21 days to do one of the following:

• Pay the debt
  
• Put the company into liquidation
  
• Appoint an administrator
  
• Start a small-business restructuring
  

Do one of those in time, and your personal liability disappears.

2. The “Lockdown” DPN

This is the “Oh… no” version.

You get this when you didn’t lodge the BAS or super forms on time.
And once it lands, the only way out is to pay the full debt.

In other words: no restructuring, no liquidation, no escape hatch.

But What If You Lodged the BAS and Didn’t Pay… and Then Ignored the DPN?

Alright. Here's where many directors find themselves:

• You lodged the BAS on time ✔️
  
• You didn’t have the cash to pay ❌
  
• The ATO sent you a non-lockdown DPN ✔️
  
• And you… well… didn’t act within 21 days ❌
  

So what now?

Here’s the blunt truth: the penalty becomes yours personally.

And the ATO — who are very patient but not exactly famous for forgetting things — can then start chasing you directly.

What Happens Once the 21 Days Are Up

When you don’t respond in time, the ATO can:

✔️ Garnishee your bank account

They can tell your bank to send them money before you see it.

✔️ Garnishee your income

If you’re on wages — even as a director — the ATO can require your employer to redirect part of your pay.

✔️ Garnishee your clients

If you’re a contractor, the ATO can legally tell your clients to pay them instead of you.

✔️ Take you to court

They can sue you personally and chase your assets.

✔️ Start bankruptcy proceedings

This is rare, but it does happen.

Essentially: the debt stops being the company’s problem and becomes your problem.

And No — Putting the Company into Liquidation Now Won’t Save You

Once the 21-day deadline has passed, you can’t “fix” it by:

• appointing a liquidator,
  
• going into voluntary administration, or
  
• starting a restructuring plan.
  

Those options only protect you before the DPN expires.

So What Should You Do Now?

1. Check if the 21 days have actually passed

Remember: the countdown starts when the notice is issued — not when you open the envelope.

Australia Post delays won’t save you.

2. Talk to the ATO early

They’re much more open to working with people who don’t bury their heads in the sand.

3. Get professional advice

A good insolvency practitioner or tax lawyer can:

• confirm whether the penalty is enforceable
  
• check if you have a defence
  
• negotiate with the ATO
  
• help avoid things escalating
  

4. Keep lodging everything on time

Even if you can’t pay — lodgement protects you from the lockdown version next time.

Is There Any Escape After 21 Days?

It’s tough, but there are a few limited defences:

• You were seriously ill or incapacitated
  
• You took reasonable steps to get the company to pay or wind up
  
• You weren’t actually a director at the time
  
• The ATO made an error
  

These are narrow and hard to use — but not impossible.

Final Word

A DPN is one of those things that feels terrifying… until you understand it. Then it becomes something you can deal with — as long as you act quickly. If you ignore it? Well, the ATO won’t.

If you need to discuss your situation, please make a complimentary appointment to speak with us today.