In relation to a director penalty notice, company directors have an obligation to ensure that a company withholds money under the pay as you go (PAYG) withholding system as well as pays a superannuation guarantee charge (SGC) under the Superannuation Guarantee (Administration) Act 1992.
If company directors do not perform this duty, they can become personally liable for the company’s debt.
To collect this debt from the director, the Australian Taxation Office must issue a director penalty notice.
However, the Australian Taxation Office is not allowed to start proceedings until 21 days after director penalty notice is issued to a director. A director penalty notice will be posted to director’s address that is registered with the Australian Securities and Investment Commission (ASIC).
Types of Director Penalty Notice
There are two types of director penalty notices:
- Non-lockdown penalty notice
- Lockdown penalty notice
Non-lockdown penalty notice is issued when the company reported its unpaid obligations within three months from the due date. Lockdown penalty notice happens when the company fails to report its unpaid obligations within three months from the due date.
The cancellation of director penalties depends on the type of director penalty notice that was issued. In the case of non-lockdown penalty notice it is enough if director within 21 days of the notice being issued will do any of the following:
- Pay the debt
- Appoint an administrator
- Appoint a liquidator
In the case of lockdown penalty notice an appointment of an administrator or liquidator will not discharge the penalty, so the so-called lockdown regime will be imposed on director. In this scenario the only action that will remit the director penalty would be the payment of the debt within 21 days of the notice being issued.
Director Penalty Notice
It is worth to note that actions mentioned above shall be taken within 21 days of the notice being issued. If the actions are not taken within that timeframe, the penalty is not cancelled and the director remains to be personally liable for the company’s debt.
There are certain defences that are available to directors. In case of their application directors will not be liable for company’s debt. The following defences are available to directors:
- Due to illness or other appropriate reason the director did not manage the company;
- The director took all reasonable steps to make sure that the company paid the debt; that an administrator was appointed to the company or that the process of winding up has begun;
- In the case of SGC obligations the director tried to apply the Superannuation Guarantee (Administration) Act 1992.