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Former Directors and DPN's

Updated: Apr 4

We have had quite a few discussions recently regarding director penalty notices (DPNs).

Topics we covered included:

The reason for providing you with a number of case studies about DPNs is that the ATO’s escalation of issuing DPNs remains on an upward trajectory, so keeping you abreast of options available in different scenarios is paramount. This month's discussion is by way of an update sharing a novel approach taken by a former director issued with a DPN.


In a judgment handed down recently, the Federal Court allowed a former director to avoid personal liability for a DPN in excess of $200,000 (Hall v CAP Security Services Pty Ltd [2023] FCA 1237).


If a Non lockdown  DPN is issued, a director avoids personal liability if, within 21 days from the date on the notice, he/she has the penalty remitted by:

  • paying the unpaid tax (or causing the Company to pay);

  • having the Company enter into voluntary administration;

  • placing the Company into liquidation;

  • appointing a small business restructuring practitioner; or

  • prove a defence to the DPN.

Mr Hall, a former director of Cap Security Services Pty Ltd (Company), was issued with a DPN for unpaid GST in the amount of $208,574.  

What did Mr Hall Do?

Unfortunately, Mr Hall was in dispute with the current directors, and as he was no longer a director of the Company he was not in a position to implement the above options. Furthermore, Mr Hall was not owed any monies by the Company.

Mr Hall personally made a payment of $5,000 to the ATO in respect of the DPN. By Making that payment, Mr Hall was entitled to be indemnified by the Company. He, therefore, became a creditor of the Company. As a creditor, he had standing under the Corporations Act 2001 (Act), to commence legal proceedings to wind up the Company.

Mr Hall then (via his lawyers) made an urgent application to the court to wind up the Company.

Two grounds for winding up were relied on:

  1. That the Company was insolvent, not for failure to comply with a statutory demand, but on the basis it was insolvent. Mr Hall proved that the Company owed money to its landlord, to the ATO for the GST (the subject of the DPN) and to Mr Hall for a payment he'd made to discharge part of the DPN amount.

  2. To support the just and equitable ground under the Act, Mr Hall was able to demonstrate that no GST returns had been lodged for about two years. The Company had unpaid tax liabilities that had been outstanding without justification whilst it continued to trade for a similar period. If it were allowed to continue to trade whilst insolvent, it would present a danger to the community at large.


The court accepted both arguments, and Mr Hall avoided personal liability by having the Company placed into liquidation before the expiration of the DPN.


This case illustrates that despite being unable to control how a company reacts to the issuance of a DPN, former directors have options. Provided a former director has grounds for a winding up application and obtains standing, they can avoid personal liability for a DPN if they act swiftly and obtain the right representation and advice.


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