What happens if you let a Director Penalty Notice (DPN) expire?
As a company director, you're legally responsible for ensuring that your company’s tax and superannuation obligations are reported and paid on time.
If payments such as PAYG withholding, goods and services tax (GST), or the super guarantee charge (SGC) aren’t made by the due date, the Australian Tax Office (ATO) can recover these unpaid amounts from you personally—even after you’ve stepped down as director.
These personal liabilities are known as director penalties. To begin recovery of your company debts, the ATO will issue a Director Penalty Notice (DPN), allowing them to pursue the outstanding amounts directly from you.
If you’ve received a DPN from the ATO, time is of the essence. Here's a breakdown of the meaning of these notices, the serious consequences of expiry, and the options available if you allow them to expire.
Lockdown versus non lockdown DPN
There are two types of DPN the ATO can issue:
Lockdown DPN
- Issued when your company fails to lodge its BAS or super returns within 3 months of the due date.
- Directors become automatically and permanently personally liable for the unpaid amounts.
- No options to avoid liability—even appointing an administrator or liquidator won’t remove the debt.
Non-lockdown DPN
- Issued when your company lodges on time but fails to pay the owed amounts.
- Directors can avoid personal liability by:
- Paying the debt in full
- Appointing a voluntary administrator
- Appointing a small business restructuring practitioner
- Beginning the process of winding up the company
All within 21 days of the DPN being issued.
Understanding DPN expiry
Technically, both lockdown and non-lockdown Director Penalty Notices (DPNs) have a 21-day response period from the date the notice is issued. However, the concept of a DPN ‘expiring’ only applies meaningfully to non-lockdown DPNs.
That’s because:
- For a non-lockdown DPN, you have 21 days to act—by paying the debt, appointing an administrator or restructuring practitioner, or beginning to wind up the company. If you don’t act within that time, you become personally liable, and the ATO can start recovery action against you. So, in this case, the DPN can ‘expire’ in the sense that your options to avoid personal liability run out after 21 days.
- For a lockdown DPN, you’re already personally liable the moment the unpaid debt arises (because the lodgements were late). The 21-day notice simply advises you of this. There are no options to avoid liability, and the ATO can take recovery action at any time following the 21-day period. So, there's no ‘expiration’ of liability—it already exists.
Consequences of expired non-lockdown DPN
If you receive a non-lockdown DPN and don’t take action within the 21-day window, your options to avoid personal liability expire.
At that point, you can no longer pay the debt, appoint an administrator, or begin winding up the company to avoid the personal penalty. The ATO is then entitled to recover the unpaid amounts from you personally.
They can do this using standard debt recovery methods, such as:
Garnishee notices
They can issue a garnishee notice to third parties who owe you money or hold funds on your behalf, typically your bank, employer or customers.
This legally requires them to redirect some or all of those funds to the ATO to reduce your debt. For example:
- A bank may be required to transfer a percentage of your account balance to the ATO.
- An employer may need to deduct a portion of your salary.
- A business client may be told to pay the ATO directly instead of paying you. They can direct your bank or employer to redirect funds toward the debt.
Director’s personal assets
They can initiate court proceedings to obtain a judgment against you. With this in hand, they can:
- Seize personal property, such as vehicles, tools or valuable assets
- Apply a charge to real estate you own, which may lead to the forced sale of the property
- Redirect proceeds from asset sales to repay the debt
This turns a company tax debt into a personal financial risk.
Court proceedings
They can take you to court to obtain a court judgment confirming the debt. Once judgment is granted, they can pursue enforcement actions like:
- Writs (legal orders) for property seizure
- Bank account freezes
- Additional legal costs added to your debt
Court action can also impact your credit record and limit your ability to obtain finance.
Bankruptcy
If the debt remains unpaid and is above the legal threshold ($10,000), the ATO may:
- Issue a bankruptcy notice
- File a creditor’s petition to apply to the Federal Court to declare you bankrupt
Depending on your personal position, bankruptcy can have serious consequences:
- You may lose control of your finances and assets
- Your ability to act as a company director is revoked
- Your credit rating is affected for years
- Travel restrictions may apply
Soured relationships
The consequences of letting a DPN expire can cause damage to your professional and personal relationships, such as with business partners, creditors and even family members. This is due to stress and a breakdown of trust.
Defending a DPN
There are various statutory defences available to directors, depending on individual circumstances. These may include:
- If you were unable to manage the company due to serious illness or another incapacitating condition
- If you acted in good faith based on professional advice concerning your company's tax liabilities
- If you weren’t involved during the period when the tax liabilities were incurred
If you believe a defence may be available, you should seek advice from a solicitor immediately.
Act fast to avoid personal liability
Because of the negative consequences of DPN expiry, if you receive a non-lockdown DPN, time is ticking, so you must act fast. Hoping things will get better isn’t a good strategy.
First, make sure you understand the breakdown of the debts outlined in the DPN and get them verified by your bookkeeper or accountant.
Next, seek professional advice from an insolvency expert (like us) to help you better assess your options, guide you through restructuring or administration, and help you respond appropriately and legally.
To note, the 21 days are from the date of the notice (not the date you receive it). Importantly, whenever you take any actions, document them. Proof of timing matters greatly in case of disputes.
One final point: make sure your ASIC-registered address is always up to date to avoid missing a DPN and letting it expire unknowingly.
If you’ve received a DPN, reach out to our experts now on (02)49084444 or (02)65800400 for free initial advice. We’ll help you understand your options and avoid the serious risks of personal liability. All discussions are strictly confidential.
