Director penalty notices: what they mean and what to do in the 21 days

If you're reading this with a director penalty notice in front of you, take a breath. A DPN is serious, but it's a process with clear rules and a defined window, and you have options. What matters most right now is knowing which kind of DPN you have, and acting inside the 21 days.

This guide explains what a DPN is, the difference between lockdown and non-lockdown notices, your options and defences, how the Payday Super changes from 1 July 2026 affect directors, and how to make sure you never get one. It's general information as at October 2026. Insolvency appointments are made by registered insolvency practitioners, and if your situation may end in liquidation or court action, you should also speak to a lawyer.

What is a director penalty notice?

Company directors are responsible for making sure the company pays three particular taxes on time:

• PAYG withholding (the tax withheld from employees' wages)
• GST
• Super guarantee charge (SGC) (the charge that applies when employees' super isn't paid on time)

If the company doesn't pay these by the due date, each director automatically becomes liable for a penalty equal to the unpaid amount. That's the director penalty. It's a "parallel" liability: the company still owes the debt, and you owe the same amount personally. A payment by either the company or any director reduces it for everyone.

The DPN is the notice the ATO must give you before it can recover that penalty from you. The ATO can start recovery 21 days after it issues the DPN. The 21 days start on the day the notice is posted to, or left at, your address on the ASIC register (or your last known address if there isn't one). Not the day you open it.

Lockdown vs non-lockdown DPN: what's the difference?

This is the single most important thing to work out.

The lesson is simple and worth repeating to every director: lodge on time even when you can't pay. A BAS lodged on time but unpaid leaves you with a way out. A BAS left unlodged for more than three months removes it.

Watch out: The ATO can also estimate a company's unpaid PAYG withholding, GST or SGC if returns aren't lodged. Estimated amounts are due when the estimate notice is given, are treated as never reported, and make you personally liable at that point.

What are my options within the 21 days?

For a non-lockdown DPN, the company can do one of four things before the 21 days end, and the director penalty is remitted:

1. Pay the debt in full. Simple, if the cash is there or can be borrowed.
2. Appoint a voluntary administrator. An insolvency practitioner takes control and works out whether the company can be saved or should be wound up.
3. Appoint a small business restructuring practitioner. Available to eligible small companies to propose a restructuring plan to creditors while the directors stay in control. There are eligibility conditions, including that employee entitlements are paid and lodgements are up to date.
4. Begin winding up the company. The company goes into liquidation.

For a lockdown DPN, only option 1 remits the penalty. Appointing an administrator or liquidator may still be the right step for the company, but it won't clear your personal liability for the lockdown amounts.

If you can't pay and none of the options suits, you can still talk to the ATO. The ATO may accept a payment arrangement and hold off recovery while it's kept, but the penalty stays in place until the debt is paid. Our guide to ATO payment plans covers how plans work and what happens if one defaults.

What not to do

• Don't ignore it. After 21 days, the ATO can garnishee your personal bank account, offset your personal tax refunds, and start legal recovery.
• Don't resign and hope. Resigning doesn't remove liability for amounts already due or periods that ended while you were a director.
• Don't move assets out of your name in a hurry. Transfers made to defeat creditors can be reversed, and the ATO can seek freezing orders. Asset protection is planned well before trouble, not during it; our guide to asset protection strategies explains how.
• Don't wait to see whether the business picks up. Every day you wait uses up time you can't get back.

Timeline: how a director penalty builds

Example only, for a company that lodges BAS quarterly.

Are there defences to a director penalty notice?

Yes, but they're narrow. You have a defence if, for the entire period since the company's obligation first arose, one of these applies:

• Illness or other good reason: because of illness or another acceptable reason, you didn't take part in managing the company, and it would have been unreasonable to expect you to.
• All reasonable steps: you took all reasonable steps to make the company pay, appoint an administrator or restructuring practitioner, or begin winding up, or there were no reasonable steps you could have taken.
• Reasonably arguable position (GST and SGC only): the company treated the law in a way that was reasonably arguable and took reasonable care.

The ATO notes that courts have found that relying on other directors or on professional advisers is not a defence by itself, and nor is not knowing what was going on. Directors are expected to keep themselves informed.

A defence must be put to the ATO in writing. If you lodge it within 60 days of receiving a garnishee notice or written notice of recovery, the decision can be reviewed by a court. Evidence is everything: board minutes, emails, records of what you asked for and when, and medical evidence if illness is relied on.

New directors and the 30-day rule

If you've just become a director, you're not liable for penalties for amounts that fell due before your appointment, as long as within 30 days of being appointed the company pays them, appoints an administrator or restructuring practitioner, or begins winding up. Resigning within the 30 days doesn't necessarily get you off.

Before you accept a directorship, ask to see the company's ATO account and its lodgement status. It takes five minutes and can save you from inheriting someone else's tax debt.

How does Payday Super change director penalties?

From 1 July 2026, employers must pay super at the same time as wages, and contributions must reach the fund within 7 business days of payday (with some exceptions, such as new employees). If they don't, the super guarantee charge applies, and the ATO now assesses the SGC itself. Employers no longer lodge a quarterly SGC statement; instead, an employer that misses a payment can make a voluntary disclosure.

Director penalties still apply to unpaid SGC. What isn't yet settled is exactly how the "reported on time" test for lockdown works under the new system. Insolvency professionals have warned that personal exposure for directors may arise much sooner than under the old quarterly rules, and that payroll reporting through Single Touch Payroll may not on its own count as reporting for DPN purposes.

Until the ATO publishes clearer guidance, our approach is cautious:

• pay super with every pay run, and reconcile it each month
• if super can't be paid on time, make a voluntary disclosure promptly rather than waiting
• treat any missed super contribution as urgent, not as something to catch up at quarter end.

Our guide to Payday Super explains the new rules for employers in full, and our super guarantee charge agent calculates what's owed on a late contribution under the new rules, with your accountant checking every figure.

How to prevent a director penalty notice

Most DPNs we see come from one of three situations: the business is short of cash and BAS goes unlodged; one director runs the finances and the others don't look; or super falls behind and no one notices. All three are preventable.

A director's DPN checklist

• Every BAS and IAS is lodged on time, even when it can't be paid in full
• Super is paid with every pay run and reconciled monthly under Payday Super
• GST and PAYG withholding are set aside in a separate account as cash comes in
• Every director can see the company's ATO account balance and lodgement status, at least quarterly
• Your residential address on the ASIC register is current
• If the company can't pay, you talk to your accountant and the ATO before the due date, not after
• Before joining a board, you've checked the company's ATO account

Mistakes we see with director penalty notices

• Not opening the mail. The 21 days run from posting, not reading. Directors who have moved and not updated ASIC lose the whole window.
• Thinking a payment plan solves it. It manages the company debt; the personal penalty stays until the debt is paid.
• Holding back BAS because the numbers are bad. Lodging on time preserves your options. Not lodging locks them away.
• The "silent" director. Being a director in name only, often a spouse, isn't a defence on its own.
• Leaving it to the last few days. Administrators and restructuring practitioners need time to assess a company before they accept an appointment.

How BPAG helps directors facing a DPN

We work through it with you calmly and quickly. Within the 21 days, that means:

• Diagnosing the notice. We check the company's ATO accounts, which periods are covered, what was lodged and when, and whether each amount is lockdown or non-lockdown.
• Lodging what's missing. Getting BAS up to date can't turn a lockdown amount back into non-lockdown, but it stops future amounts becoming lockdown and lets the ATO see the true position. Our overdue tax and ATO debt service is set up for this.
• Laying out the options with numbers. Paying, borrowing, a payment arrangement, or an insolvency appointment. Our cash flow forecast agent builds a realistic forecast so you can see whether the company can trade out; your accountant takes you through it.
• Bringing in the right people. Insolvency appointments are made by registered practitioners and legal questions go to a lawyer. We brief them and work alongside them so nothing falls between the cracks.
• Preventing the next one. Our BAS and GST service and payroll and Payday Super service keep lodgements and super on time, and every director gets a regular view of where the company stands with the ATO.

AI agents draft; qualified accountants review and sign off every piece of advice and every letter to the ATO.

General information only, current as at 18 October 2026. It is not personal tax, legal or financial product advice and doesn't take your circumstances into account. Talk to us before you act. Where a recommendation needs a licensed financial adviser or a solicitor, we work alongside them.