Director Penalty Notices (DPNs) can create serious challenges for company directors, particularly if the terms and implications of the notice are not fully understood. The two types of DPNs—21-day DPNs and lockdown DPNs—carry very different obligations and consequences for directors.
This article explains the key differences between these two types of notices, how they apply to company tax debts, and what directors need to know to protect themselves from personal liability.
What are 21-Day DPNs?
A 21-day DPN gives company directors a short window to act and avoid personal liability for unpaid company tax debts. This notice applies to debts for BAS (GST), IAS (PAYG withholding), SGC (Superannuation Guarantee Charge) where returns were lodged on time but the amounts remain unpaid.
Key Features of a 21-Day DPN
Action required: Directors have 21 days from the notice’s mailing date to take corrective action.
Options to avoid liability: Appointing a Small Business Restructuring (SBR) practitioner, voluntary administrator, or liquidator within this period clears the liability.
Eligible Debts: Includes tax debts for which lodgements were timely but payments were not made.
If you act within the 21-day period, personal liability is avoided. However, missing this critical deadline results in automatic personal liability for the debts. Call us to have an initial free and confidential chat so you know your situation and your options as soon as possible.
What are Lockdown DPNs?
Lockdown DPNs are more restrictive and come with immediate personal liability. They are issued for unpaid company tax debts where BAS, IAS or SGC returns were not lodged on time or at all. These debts “lock” directors into personal liability, leaving payment as the only solution.
Key Features of a Lockdown DPN
Immediate liability: Personal liability is automatic upon receipt of the notice.
No grace period: Unlike 21-day DPNs, there’s no window to appoint insolvency practitioners.
Eligible debts: Applies to BAS, IAS or SGC liabilities for late-lodged or unlodged returns.
Lockdown DPNs are particularly severe, as directors lose the ability to use company insolvency processes to manage the debts.
How to tell the difference between a 21-Day DPN and a Lockdown DPN
Understanding which type of DPN you’ve received is critical to responding correctly.
1. The notice’s timeframe
A 21-day DPN explicitly states the 21-day deadline for action. Lockdown DPNs lack this grace period and often specify immediate liability.
2. Lodgement status of BAS, IAS and SGC returns
21-Day DPN: Returns for the debts were lodged on time.
Lockdown DPN: Returns were late or not lodged.
3. Your options for action
A 21-day DPN allows directors to use restructuring, administration, or liquidation to clear liability. With lockdown DPNs, the only way to resolve the debt is through full payment.
What happens if you ignore a DPN?
Ignoring either type of DPN carries serious consequences:
21-Day DPN: After 21 days, personal liability is locked in for the debts listed.
Lockdown DPN: Liability is immediate, and the ATO can pursue your personal assets.
Failing to respond promptly to a 21-day DPN or a lockdown DPN may result in personal asset seizure, legal action, or even bankruptcy.
Real-life examples
Case Study: Avoiding liability with a 21-Day DPN
Jane, a director of a marketing agency, received a 21-day DPN for $150,000 in unpaid IAS debts. By quickly appointing a Small Business Restructuring practitioner, she avoided personal liability and kept her business running.
Case Study: Consequences of a Lockdown DPN
Tom, the director of a construction company, received a lockdown DPN for $80,000 in BAS debts because the returns were lodged late. With no option to restructure or liquidate, Tom had to sell personal assets to pay the debt.
How to avoid both types of DPNs
Prevention is the best strategy when it comes to DPNs. Here’s how to reduce your risk:
Lodge BAS, IAS and SGC returns on time
Always lodge returns by their due dates, even if you cannot pay. Timely lodgement ensures debts remain eligible for a 21-day DPN instead of a lockdown DPN.Set up a payment plan with the ATO
A complying payment plan shows good faith and can prevent the issuance of a DPN.Act early on financial distress
If your company is struggling financially, consult a restructuring expert to proactively manage debts and compliance issues.
Key takeaways
Understanding the differences between 21-day DPNs and lockdown DPNs can help you respond effectively and minimise personal liability. If you receive a DPN, acting quickly is essential to protect your financial future.
Need advice on handling a DPN? Contact Business Reset today to explore your options and safeguard your assets.
Read next: What Triggers a Director Penalty Notice?
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