Lockdown vs non-lockdown DPNs: when company tax debt becomes the director's problem

A client with a company and an ATO debt is not unusual. A client whose unpaid company tax debt becomes their director’s personal liability is a very different conversation.

For accountants and advisors, understanding the director penalty regime is increasingly important, particularly for clients who are company directors. In the current enforcement environment, the distinction between a lockdown DPN and a non-lockdown DPN can materially affect the options available to a business and its directors personally.

In many cases, the outcome turns on a simple question:

Were the lodgements completed on time?

The answer may change which restructuring options remain available, or whether the director becomes personally liable for the company’s tax debt.

What is a director penalty notice (DPN)?

A director penalty notice (DPN) is a notice the Australian Taxation Office (ATO) can issue before recovering certain unpaid company tax and superannuation liabilities from a director personally. The regime sits in Division 269 of Schedule 1 to the Taxation Administration Act 1953.

The regime can apply to unpaid pay as you go (PAYG) withholding, goods and services tax (GST) and the superannuation guarantee charge (SGC). The ATO describes a director penalty as a parallel liability: the director’s liability mirrors the company’s liability, and a payment against one reduces the other.

A DPN does not create the company debt. It is the notice that allows the ATO to proceed with recovery of the director penalty after the statutory period. The ATO states that it can recover penalty amounts 21 days after issuing the DPN.

For a business owner who has kept up with the company’s tax obligations on paper, or who has treated the company’s tax debt as separate from their personal affairs, receiving a DPN can change the risk profile quickly. For an advisor, it is a clear prompt to look beyond the tax account and assess the broader viability of the business, its working capital and its funding.

Why the lockdown distinction matters

Not all DPNs have the same practical consequences. The terms “non-lockdown” and “lockdown” are commonly used to distinguish between liabilities that were reported on time and liabilities that were not reported within the prescribed timeframes.

The distinction matters because the actions available to remit a director penalty, and the director’s chances to avoid personal liability, differ depending on the reporting history. By the time a lockdown DPN is issued, formal restructuring action may deal with the company’s debt but does not remove the director’s personal liability for the locked-down amounts.

Non-lockdown DPNs

A non-lockdown DPN generally concerns liabilities that were reported within the relevant timeframe but remain unpaid. The company has met its reporting obligations, but not its payment obligations.

Where the liability is not locked down, the director may still be able to cause the penalty to be remitted within the 21-day period by:

• paying the company’s tax debt covered by the notice
• appointing a voluntary administrator
• appointing a small business restructuring practitioner
• having the company begin to be wound up

The appropriate response depends on the company’s circumstances and requires immediate advice.

This is why timely reporting matters even where the company does not have the cash to pay. Reporting the liability does not solve the cash flow problem, but it may preserve options that would otherwise be lost.

Lockdown DPNs

A lockdown DPN generally concerns liabilities that were not reported within the prescribed timeframe. It arises where the company fails to report:

• PAYG withholding and GST: not reported within three months after the due date
• Superannuation guarantee charge: for quarters up to 30 June 2026, an SGC statement not lodged by its due date. For Payday Super periods from 1 July 2026, the ATO assesses SGC, and an amount is locked down unless the company lodged a voluntary disclosure statement on or before the director penalty due day.

In that situation, appointing an administrator or small business restructuring practitioner, or placing the company into liquidation, does not remit the director penalty for those locked-down amounts, even if it happens before a DPN is issued. Paying the amount in full is the only way to remit it.

That can leave the director personally exposed even if the company later enters a formal insolvency process. The practical response may be limited to paying the relevant penalty, subject to any defence or other legal issue that may apply.

The lesson for advisors is not that every client with tax debt needs a formal appointment. It is that missed lodgements can materially narrow the available pathways before the client understands the consequences.

Lockdown and non-lockdown DPNs at a glance

Defences to a director penalty

A director may have a defence to a director penalty in limited circumstances, including where:

• because of illness or another good reason, it would have been unreasonable to expect them to take part, and they did not take part, in managing the company at any time while the obligation existed
• they took all reasonable steps to ensure the directors caused the company to pay, appoint an administrator or SBR practitioner, or begin to be wound up, or there were no reasonable steps they could have taken
• for SGC or GST, the company treated the law as applying in a way that was reasonably arguable and took reasonable care in applying it

Defences are narrow and depend on evidence from the relevant period. Relying on others, including professional advisers, is not a defence in itself. Where the ATO starts recovery outside court proceedings, a director relying on the illness or reasonable steps defence generally has 60 days from the ATO’s notice to provide the supporting information, so defences should be assessed early, with specialist advice.

Warning signs advisors should watch

Accountants and advisors are often the first professionals to see that an SME client’s position is deteriorating. Warning signs can include:

• Unpaid tax debts increasing each reporting period
• Business activity statements, instalment activity statements or SGC statements remaining unlodged
• Repeated payment arrangements being missed or renegotiated
• Superannuation obligations falling into arrears
• Directors using personal funds or personal assets to support trading
• No reliable short-term cash flow forecast
• The business relying on future jobs or asset sales to meet existing liabilities

No single indicator proves insolvency. Several occurring together should prompt a broader assessment of solvency, viability, business improvement strategies and director exposure.

A DPN is part of a broader viability discussion

A DPN should not be considered in isolation. The immediate response must address the notice, but advisors should also ask whether the underlying business is viable and what pathways remain available.

• Informal turnaround: where the core business remains viable and cash flow pressure can be stabilised through operational and financial changes and available funding, for example a loan from a bank or shareholders, or equity.
• Small business restructuring: where an eligible company may be able to compromise debts through a formal restructuring plan while the directors remain in control.
• Voluntary administration: where an independent administrator and creditor protection may be required to assess and implement a better outcome.
• Orderly exit: where the business is no longer viable and continuing to trade may increase creditor and director exposure.

Common DPN misconceptions

Myth: “If the company goes into liquidation, the DPN disappears.”

Reality: The result depends on the type of DPN and the reporting history. Locked-down amounts may remain a personal liability.

Myth: “The problem only starts when the notice arrives.”

Reality: Director penalties can arise from the company’s failure to pay relevant liabilities by their due date. The DPN is the formal notice preceding recovery action.

Myth: “There is no point lodging if the company cannot pay.”

Reality: Timely reporting can preserve options. Failing to report can cause the director penalty to become locked down.

Myth: “An ATO payment arrangement solves the DPN.”

Reality: A payment plan does not remit a director penalty, and directors remain personally liable while it is in place. While a plan covering the debt is in force, the ATO cannot start proceedings to recover the penalty, but it can still issue a DPN, and that protection ends if the plan is defaulted on. The notice and the director’s personal position require specific advice.

Myth: “Resigning as a director ends the exposure.”

Reality: A director who resigns can remain liable for amounts that fell due before they resigned, and for some that fall due afterwards but relate to a period when they were still a director. A new director can also become liable for existing unpaid amounts unless, within 30 days of appointment, the company pays them, appoints an administrator or SBR practitioner, or begins to be wound up. Where there are multiple directors, the ATO can issue each of them a DPN and recover the penalty from any or all of them.

Practical steps for accountants and advisors

1. Confirm the reporting position. Identify which PAYG withholding, GST and SGC liabilities have been reported, when they were reported and what remains outstanding.
2. Check your client’s records are up to date. The ATO generally sends DPNs by post to the director’s address registered with ASIC (the law allows a residential or business address held by ASIC), so your client’s ASIC details need to be accurate and current. If the director has nominated your address as their address for service, the ATO may also send you a copy. It does not have to, and a copy does not change when the 21 days start, so do not rely on receiving one.
3. Review the notice immediately. Confirm the date the notice was posted (the date on the notice) and obtain specialist advice. Do not calculate the 21-day period from the day it arrived or the day the director happened to open it.
4. Establish the complete ATO position. Identify payment arrangements, estimates, assessments, recovery correspondence and any liabilities not yet reflected on the account.
5. Assess viability and solvency. Review current financial information and short-term cash flow, not only the historical financial statements.
6. Identify personal exposures. Consider guarantees, director loan accounts and other liabilities alongside the DPN.
7. Refer early. The objective is to understand and preserve available options, not to assume a formal appointment is inevitable.

When the options narrow

A director penalty notice is rarely the beginning of a client’s problems. More often, it is the point at which months of reporting, cash flow and compliance issues become a personal risk for the director.

For accountants and advisors, the difference between a non-lockdown and lockdown DPN can materially change the conversation. Timely reporting, accurate information and early specialist advice are critical.

When tax debts are increasing, lodgements are slipping or an ATO notice has arrived, early action can be the difference between preserving a restructuring pathway and dealing with a personal liability after the options have narrowed.

For the other ATO notices a director may receive, see our article on ATO notices and the cost of ignoring them, and how small business restructuring and voluntary administration fit within the 21 days.

Concerned about a client’s position?

If you are advising an SME client with growing ATO debt, outstanding lodgements or possible director exposure, Rapsey Griffiths can provide a confidential second view on the company’s position and the available turnaround, restructuring or insolvency pathways. Talk it through with us.

Last updated 6 November 2026. This is general information, not advice for your situation.