Director penalty notices after liquidation

You can often still be personally liable under a director penalty notice after liquidation. Liquidation removes the penalty only if the company began to be wound up before the ATO gave the notice (the DPN) or within 21 days after it, and only for amounts the company reported to the ATO in time (for PAYG withholding and GST, generally within 3 months after the due date). Otherwise the penalty generally stays with you, and the ATO can pursue you personally while the company is being wound up. For how DPNs work generally, see our page on director penalty notices.

Does liquidation cancel a director penalty notice?

Only sometimes. It depends on when the winding up began and whether the company reported the debts in time.

Under Division 269 of Schedule 1 to the Taxation Administration Act 1953 (TAA), each director becomes personally liable to a penalty equal to the company's unpaid PAYG withholding, GST or super guarantee charge if, by the end of the due day, the company has not paid, appointed an administrator or small business restructuring practitioner, or begun to be wound up (ss 269-15 and 269-20). So the penalty exists before any letter arrives. The DPN is the notice the ATO must give, 21 days before it can sue you (s 269-25(1)).

The penalty is remitted if the directors' obligation ends, for example because the company begins to be wound up, before the ATO gives the DPN or within 21 days after it (s 269-30(1)). That remission does not apply to lockdown amounts (s 269-30(2)). The ATO's practice statement PS LA 2011/18 says the same (paras 58–59).

When the company began to be wound up	Amounts reported in time	Lockdown amounts
Before the ATO gave the DPN	Penalty generally remitted	Not remitted
Within 21 days after the DPN was given	Penalty generally remitted	Not remitted
More than 21 days after the DPN was given	Not remitted	Not remitted

Payment works in every row. Any amount paid towards the company's debt, whether by the company, the liquidator or another director, reduces each director's penalty by the same amount (s 269-40).

When does a liquidation begin?

• Voluntary liquidation. Generally the day the special resolution is passed (Corporations Act 2001, s 513B).
• Court liquidation. Generally the day the court makes the order, not the day the application was filed (s 513A). A winding-up application on its own does not stop the 21 days running.
• After administration or restructuring. Generally the day that earlier process began (ss 513A, 513B, 513C and 513CA). The appointment of the administrator or restructuring practitioner also ends the directors' obligation in its own right (TAA Sch 1 s 269-15(2)).

The 21 days run from the day the ATO posts the notice or leaves it at an address, not from when you read it (s 269-25(4)). The ATO can use the residential or business address shown for you in ASIC's records (s 269-50), so an out-of-date ASIC address can cost you most of that time.

Lockdown amounts: why liquidation often doesn't help

Under s 269-30(2), a winding up that begins more than 3 months after the due day (for super guarantee charge, after the due day) does not remit the penalty for:

• PAYG withholding the company had not reported by then, in its activity statement (s 16-150) or through Single Touch Payroll (s 389-5),
• GST the company had not reported by then, including any amount by which its GST return understated what it owed,
• super guarantee charge, unless the company lodged its super guarantee statement for the quarter by the due day (for wages paid from 1 July 2026, a voluntary disclosure statement for the payday), and then only to the extent that statement understated the charge, or
• ATO estimates of any of those debts, to any extent. For estimates, the cut-off is measured from when the underlying debt (or, for GST, the GST return) was due.

If you became a director during or after those 3 months, the 3 months generally run from the day you became a director (s 269-30(3)). That rule does not apply to super guarantee charge. See our page on lockdown director penalty notices.

Check the lodgement date of every activity statement, STP report and super guarantee statement first. Whether each amount was reported in time decides whether liquidation helps you at all.

Can the ATO enforce a director penalty notice after liquidation?

Yes. The penalty is your own liability, so the liquidation doesn't stop the ATO recovering it from you, and the ATO can give a DPN even after the liquidation has begun. Once it has given a DPN, it can:

• start court proceedings to recover the penalty, once the 21 days have passed,
• issue a garnishee notice to your bank, employer or anyone else who owes you money, because a director penalty is a tax-related liability (TAA Sch 1 ss 250-10 and 260-5), or
• use a judgment debt as the basis for bankruptcy proceedings.

Check the DPN itself. If it covers amounts that were reported in time and the company began to be wound up before the notice was given, the penalty for those amounts should generally already have been remitted, and the ATO's figures may need correcting.

A payment arrangement is still possible. The company is unlikely to enter one in liquidation, but you can ask the ATO to let you pay your penalty by instalments (s 255-15). See payment plans for director penalty notices.

What does the liquidator do?

The liquidator acts for the company and its creditors as a whole, not for you, and can't withdraw a DPN or negotiate your personal penalty. But the liquidation affects you in three ways.

1. Dividends reduce your penalty. Any dividend the liquidator pays the ATO on the debt reduces your penalty by the same amount (s 269-40). Dividends can take a long time and may be small.
2. Investigations. The liquidator investigates the company's affairs and may pursue directors for insolvent trading (Corporations Act ss 588G and 588M; see also PS LA 2011/18 para 44).
3. Preference claims against the ATO. These can create a further personal liability.

ATO preference claims and the director indemnity

A payment the company made to the ATO while insolvent, generally in the 6 months before the relation-back day (often the day a winding-up application was filed or a voluntary liquidation began), may be an unfair preference the liquidator can recover (Corporations Act ss 588FA and 588FE).

If a court orders the ATO to repay an amount the company paid for PAYG withholding or for an ATO estimate of super guarantee charge (s 588FF), each person who was a director when the payment was made is liable to indemnify the Commissioner for any loss or damage resulting from the order (s 588FGA; PS LA 2011/18 para 45). The same applies to an ASIC order against the ATO about a creditor-defeating disposition (s 588FGAA). The provision does not cover GST payments, or super guarantee charge paid other than under an estimate.

For example, suppose the company paid $40,000 of PAYG withholding three months before liquidation, and a court orders the ATO to repay it to the liquidator as an unfair preference. The directors at the time of that payment can then face an ATO claim of up to $40,000, even though the company had paid it once.

Defences are available, but you must prove them (s 588FGB). They include that:

• you had reasonable grounds to expect, and did expect, the company to be solvent and stay solvent even if it made the payment,
• illness or another good reason kept you out of management at the time, or
• you took all reasonable steps to prevent the payment, or there were none you could have taken.

Can you recover from the company or your co-directors?

If you pay a director penalty, you have the same rights as a guarantor of the company's debt who is jointly and severally liable with everyone else the ATO can recover the penalty from (TAA Sch 1 s 269-45):

• Against the company, a right of indemnity (and of subrogation to the ATO's position). In a liquidation this usually means proving as a creditor.
• Against co-directors, a right to contribution from other directors liable for the same debt. A director sued for contribution can rely on the illness or reasonable steps defence, but must prove it (s 269-35(4)(b)).

Directors appointed or resigning at different times can be liable for different amounts. See DPNs for new and resigned directors.

Do the defences still apply after liquidation?

Yes. Liquidation doesn't remove the three statutory defences: illness or another good reason, all reasonable steps, and (for GST and super guarantee charge only) a reasonably arguable position taken with reasonable care (s 269-35). The 60-day time limit for raising the illness and reasonable steps defences when the ATO recovers outside court also still applies (s 269-35(4A)), and in court you must prove the defence (s 269-35(4)).

Board minutes, emails with the accountant and cash-flow records are often the key evidence. Our guide to defences to a director penalty notice explains each defence and when the 60 days start.

Does a director penalty notice survive bankruptcy?

Probably not, although we haven't found a court decision on the point for the current rules. A director penalty that arose before your bankruptcy should be a provable debt, even if the DPN reaches you later, because it is a liability you were subject to at the date of the bankruptcy (Bankruptcy Act 1966, s 82(1); TAA Sch 1 s 269-20(2)). It is not a fine imposed by a court for an offence, which is the kind of penalty the Act excludes (s 82(3)). The Federal Court has remarked, in passing, that the director penalty under the earlier regime in the Income Tax Assessment Act 1936 could be characterised as a debt provable in bankruptcy, and in that case the ATO's proofs of debt for those penalties had been accepted by the trustee (Taylor v Rudaks [2007] FCA 1962 at [47] and [48]).

Discharge releases you from provable debts (s 153(1)). It generally happens automatically 3 years after your statement of affairs is filed (or, if you petitioned for your own bankruptcy, after the Official Receiver accepted your petition), unless an objection extends the bankruptcy (ss 149 and 149A).

While you are bankrupt, the ATO generally can't enforce a remedy against you or your property for a provable debt, and can't start proceedings on it, or take a fresh step in existing proceedings, without the court's leave (s 58(3)). Discharge does not release a debt incurred by fraud (s 153(2)(b)). Your co-directors' own penalties are not affected by your bankruptcy.

Bankruptcy is a serious step, not a simple answer to a DPN. An undischarged bankrupt is automatically disqualified from managing corporations (Corporations Act s 206B(3)), and bankruptcy affects your property, income and overseas travel. The ATO describes bankruptcy as its final sanction, normally used after other collection measures have failed (PS LA 2011/18 para 16). For how the ATO uses statutory demands and bankruptcy, see ATO statutory demands, winding up and bankruptcy.

What to do about a DPN after liquidation

1. Work out when the notice was given. The 21 days run from when the ATO posted or left it, so check the date on the notice and any postmark.
2. Confirm when the winding up began. Get the liquidator's appointment documents, the members' resolution or the court order.
3. Sort the amounts. For each period on the DPN, check when the activity statement, STP report, GST return or super guarantee statement was lodged. That tells you which amounts are lockdown amounts.
4. Gather evidence for a defence now, before the company's records are boxed up.
5. Engage with the ATO. Ignoring the notice usually leads to garnishee notices or court action.
6. Ask about preference claims the liquidator is making against the ATO.

Our guide on what to do if you receive a director penalty notice covers the first few days.

Next step

Send us the DPN, the liquidator's appointment notice or the court order, the company's lodgement history for activity statements, STP and super guarantee, and any letter from the liquidator about preference claims. In a first call we'll go through which amounts are still live, whether a defence looks available and what to do first. If the company's accountant holds the lodgement records, we're happy to work with them directly.