Insolvency: ATO recommences issuing of Director Penalty Notices
The ATO suspended most overdue tax collection during the COVID-19 pandemic.
However, it has recently recommenced collection activity. This includes the issuing of Director Penalty Notices (DPNs).
Under a DPN directors become personally liable for a penalty equal to the value of certain company tax obligations, including superannuation, PAYG withholding and GST, if they are not paid when due. Prior to commencing proceedings to collect these amounts from a director, the ATO must first issue the director with a DPN.
The options available to a director when they receive a DPN depends on the type of DPN. The two types of DPNs are “Lockdown” and “Non-Lockdown”.
Directors that receive a ‘Non-Lockdown’ DPN can utilise one of the options set out in the notice within 21 days to avoid the penalty. The options available to a director are now:
- the company complies with its obligation to pay the unpaid amount to the ATO;
- the company goes into administration;
- the company appoints a Small Business Restructuring Practitioner (SBRP); or
- the company goes into liquidation.
The SBRP option has now been included. A brief summary of the SBRP process is as follows:
|1.||Director/s appoint a SBRP & notice of process is provided to creditors||0 & 1|
|2.||Director/s develop a restructure plan||20
(can be extended by 10 days)
|3.||Restructure plan certified by SBRP & issued to creditors|
|4.||Creditors vote on the restructure plan||+15
(cumulative 35-40 days)
Plan binds all creditors
|If not approved
The process ends
|If approved – up to 5 years|
|SBRP administers the plan||Directors may choose another insolvency process|
Please note that the option for the company to enter a payment arrangement has been removed. Significantly, this means that directors can no longer avoid personal liability for a penalty under a Non-Lockdown DPN by causing the company to enter a payment arrangement in relation to the outstanding liability within the 21 days.
The deletion appears to be in line with the Full Court of the Federal Court’s decision in Clifton (Liquidator) v Kerry J Investment Pty Ltd trading as Clenergy, that a payment arrangement does not cause a tax debt which was due and payable to cease to be due and payable.
The removal of the payment arrangement option will likely result in more directors who receive DPNs placing their companies into administration or liquidation or appointing an SBRP.
For more information and expert advice, ask to speak to insolvency expert Damian McGrath at Ezra Legal on (08) 8231 6100 or email email@example.com
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