Receiving a Director Penalty Notice (DPN) can be stressful, but a lockdown DPN is particularly severe. Unlike a 21-day DPN, which provides a short window to act, a lockdown DPN makes directors immediately and personally liable for certain unpaid tax debts.
The good news? Lockdown DPNs can often be avoided through proactive compliance and strategic financial management. This article provides actionable tips to reduce your risk and protect your personal financial future.
What is a lockdown DPN?
A lockdown DPN is issued when a company fails to lodge its returns—such as Business Activity Statements (BAS), Instalment Activity Statements (IAS) or Superannuation Guarantee Charge (SGC) statements—on time or at all. Once issued, personal liability is automatic, and directors have no options to restructure, liquidate, or otherwise address the debt apart from paying it in full.
Why lockdown DPNs have severe consequences
No grace period: Unlike 21-day DPNs, lockdown DPNs do not allow time to act.
Full personal liability: Directors are immediately responsible for the unpaid amounts.
Limited options for resolution: The debt must be paid, often putting personal assets at risk.
Because of these risks, preventing lockdown DPNs should be a top priority for directors.
Compliance tips to avoid lockdown DPNs
1. Lodge all returns on time
The single most effective way to avoid a lockdown DPN is to ensure all BAS, IAS and SGC statement, are lodged on time—even if your company cannot pay the associated debts. Timely lodgement keeps the debts eligible for a 21-day DPN instead of a lockdown DPN.
How to improve lodgement practices:
Set reminders: Use accounting software or calendar alerts to track due dates for BAS, SGC, and other tax compliance obligations.
Work with professionals: Engage a bookkeeper or accountant to manage compliance tasks if your team is overwhelmed.
File early: Aim to lodge returns well before the deadlines to avoid last-minute issues.
2. Prioritise superannuation compliance
Superannuation Guarantee Charge (SGC) debts are a common reason for lockdown DPNs. Failing to pay employee superannuation on time requires lodging an SGC statement. If this isn’t done promptly, the unpaid amounts become subject to lockdown liability.
Key dates to remember:
Superannuation is due 28 days after the end of each quarter.
SGC statements must be lodged by the 28th of the following month if super is unpaid.
3. Monitor compliance regularly
Staying on top of compliance is easier with regular reviews. Periodically assess your company’s tax reporting status to ensure no deadlines are missed.
Steps to improve monitoring:
Conduct monthly reviews: Review your tax obligations monthly to identify potential issues early.
Audit lodgement history: Check the ATO portal to confirm all returns have been lodged.
Implement Tracking Tools: Use management software to centralise compliance information.
Strengthening your company’s financial position
4. Address cash flow issues
Late lodgements often result from cash flow problems. If your company is struggling to pay its tax obligations, improving cash flow can prevent non-compliance.
Strategies to boost cash flow:
Review payment terms: Negotiate longer payment terms with suppliers or faster payment terms with clients.
Cut unnecessary expenses: Eliminate costs that don’t directly contribute to revenue.
Use financing: Consider short-term loans or invoice financing to bridge cash flow gaps.
5. Set up an ATO payment plan
If your company cannot pay its tax debts, negotiating a payment plan with the ATO can reduce the risk of enforcement action. While this won’t prevent a lockdown DPN for late-lodged debts, it demonstrates good faith and may prevent other penalties.
Key tips for ATO payment plans:
Propose realistic terms based on your company’s cash flow.
Make regular payments while waiting for the ATO to approve your plan.
Notify the ATO immediately if you encounter difficulties meeting the terms.
Maintaining accurate records
6. Keep ASIC details up to date
Lockdown DPNs are sent to the director’s personal address listed with ASIC. If your details are outdated, you may not receive the notice, leading to missed opportunities to address related issues proactively.
Checklist for updating ASIC details:
Confirm your personal address is current.
Update your address promptly if you move.
Regularly review ASIC records to ensure accuracy.
7. Engage professional support
Working with accountants, bookkeepers, and insolvency specialists can provide the expertise needed to manage compliance effectively. Professionals can:
Identify potential risks early.
Ensure all returns are lodged on time.
Help negotiate payment plans or restructuring options with the ATO.
Consequences of ignoring lockdown DPN risks
Failing to avoid a lockdown DPN can have severe repercussions for directors:
Personal financial loss: The ATO can pursue your personal assets, including your home and savings, to recover the debt.
Bankruptcy: If you cannot pay the liability, bankruptcy may be the only option.
Long-term debt: Lockdown DPN liabilities do not expire, leaving you exposed indefinitely.
Real-life example: Avoiding a lockdown DPN
Sarah, the director of a retail company, faced cash flow issues and delayed lodging her BAS returns. A lockdown DPN for $60,000 in GST debts was issued, leaving her personally liable. After consulting with a professional, Sarah implemented regular lodgement practices and negotiated a payment plan for future debts, ensuring compliance moving forward.
Had Sarah lodged her BAS on time, even without payment, the debt would have been eligible for a 21-day DPN, allowing her to restructure and avoid personal liability.
FAQs about avoiding lockdown DPNs
Q: Can partial lodgements protect me from a lockdown DPN?
No. You must lodge complete BAS, IAS and SGC returns by the deadlines to prevent a lockdown DPN.
Q: What happens if I miss a single lodgement?
Even one late lodgement can trigger a lockdown DPN. Act quickly to submit overdue returns and bring your compliance up to date.
Q: How do I know if my debts are at risk of a lockdown DPN?
Check your company’s ATO portal or consult an accountant to review your tax compliance history.
Key takeaways
Avoiding a lockdown DPN is entirely within your control. By lodging all returns on time, addressing cash flow issues, and maintaining accurate records, you can significantly reduce your risk of personal liability.
If your company is struggling with compliance, Business Reset can help. Contact our team today for expert advice on managing tax obligations and protecting your personal financial future.
Coming soon: Using Small Business Restructuring (SBR) to deal with a Director Penalty Notice
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