Director liability: a commercial overview
The Corporations Act 2001 (Cth), tax laws, WHS legislation and the Australian Consumer Law create several pathways to personal director exposure. The most common triggers are cashflow stress, late lodgements, compliance gaps, misleading representations and safety or environmental incidents. Because different regimes move at different speeds, early triage and documentation make a measurable difference to outcomes, costs and negotiation leverage.
This page focuses on commercially useful comparisons-what can make a director personally liable, what can reduce that risk, which deadlines matter first and which options commonly resolve the problem.
Important: This is general information about director liability under Australian law. It is not legal advice. Duties and penalties vary by facts and jurisdiction.
Received a director penalty notice and the company can't pay? Your options in the 21 days
Check the date on the notice today. A director penalty notice (DPN) gives you 21 days from the date the ATO issued it, not the date you opened it. It is posted to your address on the ASIC register (or to the company's tax agent), so if you have moved or rarely check that address, days may already have passed. After the 21 days the company's unpaid PAYG withholding, superannuation guarantee charge or GST can become your personal debt.
Which kind of notice do you have?
- Non lockdown DPN. Issued where the company lodged its BAS and super statements on time but did not pay. The penalty is remitted if, within the 21 days, the company pays the debt in full, enters voluntary administration, appoints a small business restructuring practitioner, or goes into liquidation. You still have a way out even if the company cannot pay.
- Lockdown DPN. Issued where the company lodged late (for BAS, more than three months after the due date; for super, after the SGC statement due date). Here the penalty is already locked in. Only payment removes it. Putting the company into administration, restructuring or liquidation does not clear a lockdown penalty, although it may still be the right step for the company. If this is your notice, read can you get out of a lockdown DPN below.
The notice itself says which kind it is and which debts and periods it covers. Many directors receive a mixed notice covering both.
Options when the company cannot pay in full
- ATO payment plan. Useful for keeping the business trading, but on a non lockdown notice a payment plan on its own does not stop the penalty locking in at day 21 unless the debt is actually paid. A plan can still be the right choice if you accept personal liability and want manageable instalments.
- Voluntary administration. An administrator takes control of the company and the penalty is remitted on a non lockdown notice. It costs money and the company usually ends in a deed of company arrangement or liquidation.
- Small business restructuring. For companies with total liabilities under $1 million, whose tax lodgements are up to date and employee entitlements paid. The directors stay in control while a restructuring plan is put to creditors. Appointing the practitioner within the 21 days remits a non lockdown penalty.
- Liquidation. Ends the company but remits a non lockdown penalty if the liquidator is appointed in time. Often the honest answer where the business cannot be saved.
- Pay personally. If you can borrow or use personal funds, paying the DPN amount removes the liability for both kinds of notice.
What personal liability actually means
Once the penalty is fixed, the ATO treats it like any personal tax debt. It can garnishee your wages or personal bank accounts, offset your personal tax refunds, commence court proceedings and ultimately issue a bankruptcy notice. The debt is not limited to your share of the company and the ATO can pursue any one director for the full amount.
Defences, and why they rarely succeed
The defences are narrow: you did not take part in management because of illness or another good reason; you took all reasonable steps to have the company pay, enter administration, restructuring or liquidation, or there were no such steps you could take; and, for super, the company took reasonable care and adopted a reasonably arguable position. The ATO and courts read these strictly. Being unaware of the debt, relying on a co-director or being an inactive or family director is generally not enough.
Two traps
- Resigning does not help. You remain liable for debts that fell due while you were a director, and for debts due before you resigned where the company did not act within the 21 days. Resigning after the notice arrives does not remove the penalty.
- New directors. If you were appointed recently, you have 30 days from appointment before you become liable for the company's existing PAYG, super and GST debts. Use that window to check the company's integrated client account and lodgement history before it closes.
What to send an insolvency or tax lawyer today
- The DPN itself, every page, including the envelope or the date it was issued
- The company's ATO integrated client account statement showing what is owing and for which periods
- The last four BAS lodgements and when each was lodged
- Super guarantee statements and payment records for the periods on the notice
- ASIC extract showing your appointment date and registered address
- Any existing ATO payment plan or correspondence
With the notice and the account statement a lawyer can usually tell you within a day whether the penalty is lockdown or non lockdown, how many days remain, and which of the five options above is realistic for your company and your personal position.
Lockdown director penalty notice: can you get out of it?
The short answer is that a lockdown penalty is only removed by payment, a successful statutory defence, or a reduction of the company debt it is based on. Liquidation, administration or restructuring will not remit it. That is a hard message, but there are still real decisions to make, and some of them reduce what you end up paying or how it is enforced.
Confirm it really is a lockdown notice
Read the notice, not just the covering letter. It lists each debt, the period, the lodgement due date and whether the amount is lockdown or non lockdown. For PAYG withholding and GST, the amount is lockdown where the BAS or IAS was lodged more than three months after its due date. For superannuation, it is lockdown where the SGC statement was lodged after its due date. Check the lodgement dates against the company's ATO account rather than taking the letter at face value, because a wrong lodgement date is one of the few things that changes the category. Many notices are mixed: some periods lockdown, some not.
The 21 days still matter
On a mixed notice, the non lockdown amounts can still be remitted if the company pays, enters administration, appoints a small business restructuring practitioner or goes into liquidation within the 21 days. On the lockdown amounts the 21 days is the point after which the ATO can start enforcing against you personally, so it is the window for putting a defence, objection or payment proposal in front of the ATO before garnishee or court action begins.
The defences, and who they fit
- Illness or another good reason for not taking part in the management of the company at the time the debt fell due. This fits a director who was genuinely incapacitated or excluded, and needs medical or other evidence of the period involved.
- All reasonable steps. You took all reasonable steps to have the company pay, or to have it enter administration, restructuring or liquidation, or there were no such steps available to you. This fits a director who can show board papers, emails and adviser contact proving they pushed for action and were overruled or blocked.
- Reasonable care on super. For SGC amounts only: the company took reasonable care in applying the super guarantee law and adopted a reasonably arguable position, for example a genuine contractor versus employee question. This does not cover simply not paying.
Being a silent, family or inactive director, trusting a co-director or the bookkeeper, or not knowing the debt existed is not a defence. The defences must be raised and evidenced, usually in response to ATO recovery proceedings or in correspondence before them.
Disputing the underlying company debt
The penalty follows the company's debt. If the company's assessment is wrong, the company can object to it and, if the objection succeeds, the director penalty reduces with it. If the amount is an ATO estimate because the company never lodged for the period, lodging the actual figures can replace the estimate with the true amount, which is often lower. A lawyer or tax agent should check this first, because a successful reduction of the company debt is the one route that genuinely cuts a lockdown penalty rather than just rescheduling it. An objection does not pause the DPN itself, so you may need to deal with payment terms at the same time.
Will the ATO do a payment plan on a director penalty?
Generally yes, as a personal arrangement with you rather than the company. The ATO wants to see that your own lodgements are up to date, a realistic proposal based on your actual income and assets, an upfront amount where possible and a short term. A company payment plan does not protect you on a lockdown amount; the penalty remains yours, although every dollar the company pays on the debt reduces what you owe because the two liabilities run in parallel. If the company has already been wound up, the arrangement will be with you alone.
Former directors and notices issued after liquidation
Resigning does not remove a lockdown penalty for debts that fell due while you were a director, and the ATO can issue a lockdown DPN to a former director years later, including after the company has gone into liquidation. A notice that arrives after liquidation usually means the lodgements were late, so the liquidation did not remit the penalty. The same checks apply: confirm the periods and lodgement dates, test the defences, and look at whether the company debt itself can be reduced.
What enforcement looks like
Once the 21 days pass the ATO treats the penalty as your personal tax debt. It can garnishee wages and bank accounts, offset refunds, sue for judgment and serve a bankruptcy notice. The family home is not protected if it is in your name or jointly held; a trustee in bankruptcy can deal with your share. Transferring the house, cars or savings to a spouse or trust now is a mistake: transfers made to defeat creditors can be unwound in bankruptcy, and they weaken any payment plan negotiation. Dealing with the ATO before enforcement starts almost always produces better terms than after.
What a tax or insolvency lawyer does here
Checks the lodgement dates and categorisation on the notice, assesses whether any defence has real evidence behind it, reviews whether the company debt can be objected to or an estimate replaced, prepares the payment proposal so it is accepted first time, and if the numbers do not work, advises on personal insolvency options before the ATO chooses them for you. This is time critical, so send the notice and the ATO account statement as soon as you have them.
Where directors can be personally liable
Common personal exposure points
- Insolvent trading (s588G): risk of personal compensation and penalties if the company incurs debts while insolvent and safe harbour does not apply.
- ATO Director Penalty Notices (DPNs): personal liability for unpaid PAYG withholding, SGC and GST under the Taxation Administration Act 1953 (Cth). Standard and lockdown DPNs operate differently.
- Directors’ duties (ss180-184): care and diligence, good faith and proper purpose, and no improper use of position/information. Civil penalties and, for some conduct, criminal liability.
- Accessorial liability under the Australian Consumer Law (e.g., misleading or deceptive conduct) when a person is knowingly concerned in a contravention.
- WHS officer duties: due diligence obligations for officers; serious incidents can lead to significant fines and, in some jurisdictions, industrial manslaughter offences.
- Environmental and regulatory offences: pollution and licensing contraventions can attach to officers who are complicit or fail to take reasonable steps.
- Personal guarantees and securities: liability under bank or supplier guarantees, PPSR charges and indemnities given by the director.
- Phoenixing and record‑keeping offences: civil and criminal exposure where intentional creditor avoidance or failures are proven.
Why matters become urgent
Deadlines can convert a negotiable problem into a fixed personal debt or penalty. Examples include ATO DPN 21‑day clocks, statutory demands, WHS improvement/prohibition notices, and ASIC timeframes. Fast action often enables standstill agreements, safe harbour set‑up, insurer notification and better settlement options.
Defences, protections and practical options
- Safe harbour (s588GA): after suspecting insolvency, protection from insolvent trading if you develop and implement a plan reasonably likely to lead to a better outcome than immediate administration or liquidation. Requires proper records, advice and ongoing compliance (e.g., employee entitlements and tax reporting).
- Business judgment rule (s180(2)): protection where a judgment is made in good faith for a proper purpose, on an informed basis, with no material personal interest and rational belief it is in the company’s best interests.
- Reliance on information (s189): reasonable reliance on competent advice or reports may support a defence to duty claims.
- D&O insurance: may cover defence costs and some liabilities. Check exclusions, notification requirements and conduct provisions.
- Company indemnities (subject to s199A limits): cannot indemnify for some penalties or liabilities to the company; legal costs depend on outcome and policy wording.
- Restructuring pathways: informal workouts, payment plans, small business restructuring, voluntary administration (VA) or deeds of company arrangement (DOCA) to ring‑fence liabilities and preserve value.
- Negotiation and regulator engagement: early, well‑documented engagement with the ATO, ASIC, WHS regulators and creditors often improves outcomes.
Urgent deadlines that frequently matter
| Deadline | Why it matters |
|---|---|
| ATO Director Penalty Notice | 21 days from the date on the notice, not the date you received it. A non lockdown DPN is remitted if the company pays, enters voluntary administration, appoints a small business restructuring practitioner or goes into liquidation in that time. A lockdown DPN is only cleared by payment. See your options when the company cannot pay. |
| Statutory demand | 21 days to comply, set aside or negotiate. Non‑compliance can lead to a presumption of insolvency and winding‑up proceedings. |
| WHS notices | Improvement/prohibition notices carry short timeframes. Non‑compliance escalates risk of prosecution and higher penalties. |
| ASIC/ASIC‑initiated timelines | Information notices and investigations are time‑sensitive; responses shape future exposure and defences. |
Documents and information that often matter first
Clear, consolidated records support eligibility for safe harbour, insurer notifications and early negotiations.
- Recent management accounts, aged payables/receivables and cashflow forecasts
- Board papers and minutes, adviser reports and turnaround plans
- ATO statements, DPNs, payment plans and BAS/SGC lodgement history
- Contracts, loan agreements, security documents and any personal guarantees
- D&O insurance policy, endorsements and prior notifications
- Compliance materials: WHS policies, incident reports, training records
- Company constitution, shareholder agreements and delegations of authority
How these matters often move forward
| Stage | What usually happens |
|---|---|
| Triage and issue map | Identify urgent clocks (e.g., DPN), likely exposure category (duties, tax, WHS, ACL) and insurance/indemnity position. |
| Records and advice | Assemble financials and minutes; seek targeted advice to test safe harbour, defences and negotiation options. |
| Regulator/creditor engagement | Contact ATO/ASIC/regulators, propose plans, consider standstill, and document corrective steps. |
| Restructuring or dispute pathway | Pursue payment plans, SBR/VA/DOCA or defend/settle claims. Continue compliance and reporting to maintain protections. |
Costs and pricing for director liability help
What to expect
- Free initial call to confirm urgency, scope and documents needed.
- Fixed‑fee scoping or document review where possible (e.g., DPN review, safe harbour set‑up check, duty breach risk scan).
- Written cost estimate with scope, timelines and deliverables before you proceed.
- For complex disputes, blended models (fixed stages + capped hourly) are common.
Ways to reduce cost
- Send a one‑page timeline, cashflow summary and key notices upfront.
- Nominate a single contact for instructions and document collation.
- Ask for options: negotiate, restructure, defend or a hybrid strategy.
- Confirm insurer notification requirements early to preserve cover.
Director Liability FAQ
What can make a director personally liable in Australia?
Insolvent trading, ATO DPNs for PAYG/SGC/GST, breaches of duties (ss180-184), accessorial liability under the ACL, WHS officer due diligence failures, environmental offences and personal guarantees are the main sources of exposure.
I received a director penalty notice and the company cannot pay. What do I do?
Count 21 days from the date on the notice. If it is a non lockdown DPN, the penalty is remitted if within that time the company pays, enters voluntary administration, appoints a small business restructuring practitioner or goes into liquidation. If it is a lockdown DPN (lodgements were late), only payment removes it. Get the notice and the ATO integrated client account to a lawyer immediately so the right option can be chosen before the deadline.
Does an ATO payment plan stop a director penalty notice?
Not on its own. For a non lockdown notice the penalty still locks in at day 21 unless the debt is paid or the company enters administration, restructuring or liquidation. A payment plan can still be sensible if you accept personal liability and want to keep trading while paying it down.
Can I resign as director to avoid the penalty?
No. You stay liable for PAYG, super and GST debts that fell due while you were a director. Resigning after the notice arrives does not remove the liability. New directors have 30 days from appointment before they become liable for the company's existing debts.
What happens if I ignore a director penalty notice?
The penalty becomes your personal debt. The ATO can garnishee your wages and bank accounts, offset your personal tax refunds, sue you and issue a bankruptcy notice. The defences (illness, all reasonable steps taken, reasonable care on super) are narrow and rarely succeed, so acting within the 21 days is far better than relying on them later.
Can you get out of a lockdown director penalty notice?
Only by paying it, by establishing one of the narrow statutory defences (illness or another good reason for not taking part in management, all reasonable steps taken, or reasonable care on super), or by reducing the company debt it is based on. Liquidation, administration or restructuring do not remit a lockdown penalty. See lockdown DPN: can you get out of it.
Can I object to a director penalty notice or dispute the tax debt behind it?
There is no objection against the DPN itself, but the company can object to the assessment it is based on, and if the amount is an ATO estimate for an unlodged period, lodging the actual figures can replace it. If the company debt comes down, the director penalty comes down with it. An objection does not pause enforcement, so payment terms usually need to be handled at the same time.
Will the ATO give me a payment plan for a director penalty?
Usually, as a personal arrangement based on your own income and assets, with your own lodgements up to date and a realistic term. A company payment plan does not protect you on a lockdown amount, although payments the company makes reduce what you owe. On a non lockdown amount a payment plan does not stop the penalty locking in at day 21.
Can the ATO issue a director penalty notice after liquidation or after I resigned?
Yes. Lockdown liability survives resignation and liquidation, so a former director can receive a notice for late-lodged PAYG, GST or super periods long after leaving, and after the company has been wound up. Check the periods and lodgement dates, test the defences and get advice on whether the company debt can be reduced.
What is safe harbour from insolvent trading?
A statutory protection (s588GA) when, after suspecting insolvency, you develop and implement a turnaround plan reasonably likely to yield a better outcome than immediate external administration, while keeping records and reporting up to date.
Are penalties insurable or indemnifiable?
D&O may cover defence costs but civil penalties are often not insurable and a company cannot indemnify for certain liabilities (s199A). Check your policy and seek advice early.
What will a lawyer do first?
Confirm deadlines, review financials and notices, map duty exposure, check safe harbour and insurance, and set a plan for negotiation, restructuring or defence.
How much does advice on director liability cost?
Most firms offer a free initial call and a fixed‑fee scoping review. Ask for a written estimate, scope and milestones before proceeding.
Need help with a director penalty notice or other director liability?
If you have a DPN, tell us the date on the notice, whether it says lockdown or non lockdown, and whether the company can pay. Use the form below to be matched with an Australian insolvency or tax lawyer who can confirm which type you have, how many days remain, whether a defence, objection or payment plan is realistic for a lockdown amount, which of the options above fits your company, and what it will cost.
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