Lockdown DPNs: Understanding Personal Liability and Real-Life Implications.
As a company director, dealing with financial challenges can be tough, but receiving a Lockdown Director Penalty Notice (DPN) can make things even more stressful. A Lockdown DPN places immediate personal liability on you for your company’s unpaid tax debts, and it leaves you with few options for recourse. This means your personal assets—such as your home, vehicle, and savings—could be at risk of being seized to settle the company’s liabilities. Unlike a Non-Lockdown DPN, you cannot avoid liability by appointing a voluntary administrator or liquidating the company. Instead, you are personally responsible for paying the debt in full.
In this blog, we’ll dive deep into the implications of a Lockdown DPN, share real-life examples, and explain what steps you can take if you find yourself in this situation.
What is a Lockdown Director Penalty Notice?
A Lockdown DPN is issued by the Australian Taxation Office (ATO) when a company fails to meet its tax obligations for more than three months beyond their due date. This includes obligations such as Pay As You Go (PAYG) withholding and Superannuation Guarantee Charge (SGC). Once issued, the director is immediately personally liable for the unpaid tax debts, and appointing an administrator or liquidating the company will not release the director from this liability.
The only way to resolve a Lockdown DPN is to pay the debt in full.
Why Directors Should Take Immediate Action
The reality is that once a Lockdown DPN is issued, your personal assets are at risk. Failing to report and pay tax obligations like PAYG and SGC for more than three months means you lose the ability to use traditional options like voluntary administration or liquidation to resolve the debt.
Here’s why you should take immediate action and contact us if you receive a Lockdown DPN:
Personal Financial Risk: The ATO can pursue your personal assets, including savings, property, and other valuable possessions, to recover the debt.
Limited Options: Unlike Non-Lockdown DPNs, appointing an administrator or liquidating the company will not protect you. Paying the debt or negotiating a payment plan is your best option.
Potential Bankruptcy: If you are unable to pay the debt, you may be forced to enter into a Personal Insolvency Agreement (PIA) or, in worst cases, declare bankruptcy. Both options have long-lasting impacts on your personal and professional life.
Steps You Can Take If You Receive a When Lockdown Director Penalty Notice
If you receive a Lockdown DPN, it’s crucial to act immediately. Here’s what you should do:
Pay the Debt in Full
This is the most straightforward way to resolve the issue and eliminate personal liability.
Negotiate a Payment Plan
Consider a Personal Insolvency Agreement (PIA)
Act QUICKLY
Real Life Scenarios - The Case of XYZ Ltd
Jessica was the director of XYZ Ltd, an IT services company. The company had been operational for several years but had cash flow issues that led to missed payments of PAYG withholding taxes. Jessica was aware that the company had tax debts but did not prioritise reporting and paying on time. After the ATO repeatedly warned the company, Jessica received a Lockdown DPN for $120,000.
Unfortunately, XYZ Ltd was beyond recovery, and Jessica realised that she was personally liable for the unpaid taxes. Appointing a voluntary administrator or liquidating the company wouldn’t absolve her personal liability, Jessica was forced to liquidate her personal assets to meet the obligations.
Jessica sought professional advice from TTJ Advisory's Bankruptcy Trustee Thyge Trafford-Jones who was able to negotiate with the ATO directly. She was able to enter a payment arrangement (PIA) with the ATO, allowing her to pay off the debt in instalments, which gave her time to reorganise her finances without losing her home.
Key takeaway: Direct negotiations with the ATO for payment arrangements can offer directors a lifeline when faced with personal liability from a Lockdown DPN.
Protect Yourself from Lockdown DPNs
Receiving a Lockdown DPN can feel overwhelming, but acting quickly can help you manage the consequences. Whether through paying the debt, negotiating a payment plan, or exploring insolvency solutions like a PIA, it’s important to take control of the situation before it escalates further.
At TTJ Advisory, we specialise in helping directors manage the personal liability risks associated with DPNs. If you’ve received a Lockdown DPN, contact us today for expert guidance and tailored solutions to protect your personal assets and financial future.
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