Director Penalty Notice 21-Day Deadline: Funding, Remission and Urgent Next Steps
A Director Penalty Notice can expose a director personally to specified unpaid company tax and super liabilities. The response depends on the notice, lodgment history, debt type and company position—not simply whether finance is available.
Commercial and business-purpose finance only. This article is general information, not legal, tax, insolvency or financial advice. A DPN is time-sensitive. Obtain immediate advice from qualified legal, tax and insolvency professionals. Finance is subject to assessment, valuation, lender criteria, documentation, acceptable security and exit.
The ATO’s 21-day period runs from when the notice is given, not from when a director opens or reads it. A director should preserve the envelope and notice, record key dates and obtain professional advice immediately.
What is a Director Penalty Notice?
The ATO states that company directors can become personally liable for certain unpaid company amounts, including pay as you go withholding, goods and services tax and super guarantee charge. These personal liabilities are called director penalties.
PAYG withholding
Unpaid amounts the company was required to withhold and pay to the ATO may fall within the regime.
GST
Specified unpaid GST liabilities can give rise to director penalties for relevant tax periods.
Super guarantee charge
Unpaid SGC and related reporting timing can materially affect the available remission pathways.
Personal recovery
After issuing a DPN, the ATO may take recovery action against a director for the penalty amount.
The notice should be reviewed against the company’s accounts, lodgments and ATO records. Do not assume the company balance and director penalty are identical without professional reconciliation.
How does the 21-day DPN period work?
ATO Practice Statement PS LA 2011/18 explains that recovery proceedings for a director penalty generally cannot begin until 21 days after the director is given a DPN. The period is linked to the notice being given—not the date it is eventually read.
- record the date shown on the notice;
- keep the envelope and delivery information;
- confirm the director’s ASIC-registered address;
- send the complete notice to the adviser immediately;
- identify each debt type, period and amount;
- verify when the underlying liabilities were reported;
- map legal, insolvency, tax and funding workstreams in parallel; and
- do not wait for a finance approval before obtaining professional advice.
What is the difference between locked-down and non-locked-down penalties?
The ATO’s current practice statement distinguishes penalties according to debt type and when the company notified the underlying liability.
Potentially non-locked-down
For relevant liabilities reported within the required timeframe, appointment of an administrator or small business restructuring practitioner, or beginning a winding up, may be capable of remitting the penalty if completed before or within the 21-day period.
Locked-down
Late reporting can lock down the penalty, meaning those insolvency appointments do not remit it. Payment of the relevant debt remains a separate issue.
PS LA 2011/18 states that PAYG withholding and GST amounts notified more than three months after the payment due date, and SGC where statements were not lodged by the due date, can become locked down. The actual notice and reporting history must be checked by qualified advisers.
This article does not determine whether a particular penalty is locked down or what legal step a director should take.
What should a director do first?
- Obtain specialist advice. Engage an experienced tax lawyer, accountant and registered insolvency practitioner as appropriate.
- Reconcile the notice. Match amounts and periods to company lodgments, accounts, ATO statements and payments.
- Assess company solvency. ASIC notes that directors must understand the company’s financial position and prevent insolvent trading.
- Identify available legal pathways. The correct response depends on whether penalties are locked down, company circumstances and the advice received.
- Prepare funding evidence if relevant. Property, debt, payout, requested amount, purpose, valuation inputs and repayment exit should be assembled immediately.
Do not treat a DPN as an ordinary invoice or negotiate in isolation from the company’s broader creditor and solvency position.
Where may property-backed business finance fit?
Subject to professional advice and lender assessment, property-backed commercial finance may potentially provide funds to pay or refinance eligible business-related liabilities. The structure must have a genuine commercial purpose, acceptable security and a credible exit.
- pay specified company tax liabilities as part of an advised response;
- refinance an existing short-term facility used for a business-purpose payout;
- release equity for business restructuring and working capital alongside a documented plan;
- consolidate eligible secured commercial debts; or
- bridge to an asset sale or longer-term commercial refinance.
Finance does not determine the legal effect of the DPN and should not delay legal or insolvency advice. A lender will not generally rely on urgency alone as evidence of capacity to repay.
What information may a DPN finance lender assess?
Notice and ATO position
Complete DPN, company statements, debt breakdown, relevant lodgments, payments and adviser explanation.
Property security
Ownership, title, location, current mortgages, estimated value, rates and any caveats or other interests.
Borrower and purpose
Company and director structure, genuine business purpose, source of funds and how settlement proceeds will be applied.
Repayment exit
Property sale, commercial refinance, business cash flow or another evidenced source with realistic timing.
- requested loan and settlement amount;
- current mortgage statements and payout figures;
- property documents and valuation information;
- assets, liabilities and relevant financial information;
- legal and tax adviser contact details where authorised;
- settlement destination and payout evidence;
- exit documents and fallback strategy; and
- any deadline that may affect feasibility.
How might property-backed funding be structured?
First-mortgage refinance
A new commercial facility may refinance existing secured debt and provide an approved business-purpose payout, subject to value and assessment.
Second mortgage
Available property equity may support a consented second-ranking business facility, subject to priority, senior-lender requirements and exit.
Additional security
Another eligible property may be assessed where the primary security does not support the full requirement.
Short-term bridge
A commercial bridge may fund an advised payout pending sale or longer-term refinance, provided the timing and net proceeds are credible.
Loan parameters are case-specific. No rate, LVR, loan amount, approval time or settlement outcome should be assumed until the lender completes its assessment.
What mistakes should directors avoid?
- waiting until the end of the notice period to seek advice;
- counting 21 days from the date the notice was opened;
- assuming resignation removes existing director-penalty exposure;
- assuming all DPNs have the same remission pathways;
- paying a deposit to an unverified finance provider;
- using an unsupported property value or outdated payout;
- relying on “guaranteed approval” or “same-day settlement” claims;
- ignoring other creditors and potential insolvency;
- creating new debts without considering director duties; and
- sending sensitive tax and identity records through insecure channels.
ASIC states that directors must understand company activities and financial position and can face consequences if the company incurs debts it cannot pay. Obtain advice tailored to the company and director.
A director receives a DPN while the company owns investment property
Situation: A director receives a DPN covering specified company tax liabilities and immediately engages tax, legal and insolvency advisers.
Review: Advisers reconcile the notice, reporting history, company solvency and available legal responses. The director separately investigates property-backed commercial finance as one potential funding source.
Potential structure: A lender assesses a business-purpose facility secured by eligible Australian property, with settlement funds applied as documented and advised.
Exit: The proposed short-term debt is repaid from a planned property sale or longer-term commercial refinance, subject to valuation, assessment and timing.
This is a hypothetical illustration only, not legal or tax advice, a completed transaction or a promise of approval or settlement.
Director Penalty Notice deadline FAQs
Does the 21-day period start when I open the DPN?
No. ATO guidance links the period to when the notice is given. Preserve the notice and envelope and obtain immediate professional advice about the applicable date.
Can a payment arrangement automatically remit a DPN?
Do not assume so. The effect of any payment arrangement or payment on the director penalty should be confirmed with qualified advisers and the ATO in the specific circumstances.
Can finance remove a locked-down penalty?
Finance itself does not change whether a penalty is locked down. It may potentially provide funds for an advised payment strategy, subject to lender assessment and settlement.
Can I use residential property as security?
Eligible Australian property may potentially be considered for a genuine commercial or business-purpose facility, subject to ownership, value, existing debt, lender criteria and legal requirements. This is not consumer home-loan advice.
Does resigning as director cancel the penalty?
ATO guidance states that former directors can remain liable for relevant liabilities connected with periods before resignation. Obtain advice about the specific dates and liabilities.
Is DPN finance guaranteed within 21 days?
No. Finance is subject to information, valuation, credit, legal due diligence, documents and settlement dependencies. Urgency does not guarantee approval or settlement.
Official Australian references
Need to assess a time-sensitive DPN funding scenario?
After obtaining appropriate professional advice, Basic Finance Loans can review the business-purpose requirement, property security, existing debt, requested payout and proposed repayment exit.
Commercial and business-purpose finance only. Information is general and does not constitute legal, tax, insolvency, valuation or financial advice. Finance is subject to assessment, valuation, lender criteria, documentation, acceptable security and exit.