Director Penalty Notices in Australia: The 21 Day Rule and How Directors Fund the Payment Option

A director penalty notice (DPN) makes a company director personally liable for the company's unpaid PAYG withholding, GST or super guarantee charge. The Australian Taxation Office can recover those amounts from the director personally 21 days after issuing the notice. Depending on when the liability was reported, paying the debt in full may be the only way to remove that personal liability.

• The 21 day clock starts on the day the ATO posts the notice or leaves it at the address registered with ASIC, not the day the director opens the envelope. Directors routinely lose the first week to postal delay.

• There are two kinds of director penalty. If the liability was reported within 3 months of its due date, four remission options exist. If it was reported late or never reported, payment in full is the only option that removes the penalty.

• Resigning does not help. The ATO states plainly that resignation does not remove liability for amounts that were due before resignation, or that relate to a period when the person was still a director.

• The penalty is a parallel liability, so a payment made by the company reduces each director's personal exposure by the same amount, and vice versa.

• Where payment is the only route, the practical question becomes whether the director can raise funds inside a very short window. Property equity is usually the fastest available source, but a loan is not the right answer in every case.

This article explains how the director penalty regime works and how funding is typically structured. It is general information, not legal, tax or insolvency advice. Anyone who has received a DPN should speak to their registered tax agent, accountant or lawyer immediately.

What is a director penalty notice?

Company directors are responsible for ensuring the company reports and pays its tax and superannuation obligations on time. Where the company does not, the ATO can recover certain amounts from directors personally.

According to the ATO, a director may become personally liable for the company's unpaid amounts of:

• pay as you go (PAYG) withholding

• goods and services tax (GST)

• super guarantee charge (SGC)

These amounts are called director penalties. A DPN is the notice the ATO must give before it can act to recover them.

The notice sets out the unpaid amounts and the remission options available. The ATO can begin recovery action 21 days after the notice is issued.

Director penalty notices in short

A director penalty notice transfers a company's unpaid PAYG withholding, GST or SGC liability to its directors personally. The ATO can recover from the director 21 days after issuing the notice. Where the underlying liability was reported within 3 months of its due date, the penalty can be remitted by payment, voluntary administration, appointing a small business restructuring practitioner, or winding up. Where it was reported late or not at all, only payment in full removes the penalty.

When the 21 day clock actually starts

This is the detail that costs directors the most time.

The ATO states that the 21 days starts on the day it posts the DPN, or leaves the DPN at the address registered with ASIC. It does not start when the director reads it.

Two consequences follow. First, a director whose ASIC address is out of date may lose a substantial part of the period, or never receive the notice at all while the clock runs. Second, even with current details, ordinary postal delivery can consume several days before the notice is in hand.

Directors who treat day one as the day the envelope arrives are usually working with materially less time than they think.

The two types of director penalty

The remission options available depend entirely on when the underlying liability was reported to the ATO. This distinction is commonly described in the market as a non-lockdown notice and a lockdown notice.

	Reported within 3 months of the due date	Reported more than 3 months after the due date, or never reported
Commonly called	Non-lockdown DPN	Lockdown DPN
Pay the outstanding amount in full	Remits the penalty	The only option that remits the penalty
Appoint a voluntary administrator	Remits the penalty	Does not remit the penalty
Appoint a small business restructuring practitioner	Remits the penalty	Does not remit the penalty
Begin winding up the company	Remits the penalty	Does not remit the penalty

For SGC the test is slightly different. Where SGC amounts were reported by the SGC due date, all four options are available. Where SGC was reported after the due date or never reported, payment in full is the only route.

There is one further trap. Where a company fails to report by the due date, the ATO may make its own estimate of the unpaid amount. The ATO treats estimated amounts as amounts that were never reported, which places them in the lockdown category.

Why the lockdown notice changes the question

For a non-lockdown DPN, the director has genuine strategic choices, and those choices belong with an insolvency professional and the company's accountant.

For a lockdown DPN, the position is narrower. Appointing an administrator or liquidator will deal with the company, but it will not remove the director's personal liability. The penalty survives the company. The ATO also confirms that a director remains liable after the company is deregistered.

At that point the question stops being what should we do with the company, and becomes can the debt be paid, and where does the money come from. That is a funding question, and it is the one almost no published guidance on this topic addresses.

What paying in full actually requires

Directors are frequently surprised by three things.

1. The amount is larger than the BAS figure. General interest charge and penalties accrue on the company liability, and the DPN reflects the position as at the date of issue.

2. Each director is likely to owe the same amount. The ATO describes the director penalty as a parallel liability. Where a company has two directors and a $200,000 liability, each director may be pursued for $200,000. The debt is not halved. Payments by any party reduce all of the parallel liabilities equally, so the total collected does not exceed the debt, but each director is exposed to the whole amount until it is paid.

3. Partial payment does not stop recovery of the balance. Reducing the liability helps, but only payment in full remits a lockdown penalty.

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Funding the payment option

Where a director decides, on proper advice, that paying the company liability is the right course, the funds have to come from somewhere within a compressed timeframe. Bank finance is rarely available on that timeline, and an active ATO debt often rules it out on policy grounds regardless of timing.

In practice, the fastest available source for most directors is equity in property they or the company own. Property-backed private lending is commonly used in these scenarios because it is assessed on the security and the exit strategy rather than on current financial statements, which in a DPN scenario are unlikely to present well. We have written about a related scenario in using private lending to resolve urgent ATO tax debt. Funding is usually structured as one of the following:

Structure	When it tends to fit	Practical constraint
Second mortgage behind an existing bank loan	There is equity but the director does not want to disturb a good first mortgage	Usually requires the first mortgagee to consent or enter a priority deed, which is often the slowest step
First mortgage refinance	The existing facility is expiring, expensive, or small relative to value	Requires paying out the incumbent lender, so more moving parts
Caveat loan	Speed is the binding constraint and the amount is modest relative to equity	Short term and priced accordingly, so it needs a credible refinance or sale behind it

Whether any facility is available depends on the security, the loan to value ratio, the exit strategy and the lender's assessment. Nothing about a DPN scenario changes the underlying credit requirements.

Can a loan settle inside 21 days?

Sometimes, but it should not be assumed, and the honest answer matters more here than a reassuring one.

The 21 day period does not pause while finance is arranged. A director who makes their first funding enquiry on day 14 is unlikely to settle in time.

A straightforward first mortgage over a standard residential or commercial property, with a current valuation and responsive solicitors, can move quickly. A second mortgage that requires the first mortgagee's consent frequently cannot, because that step sits entirely outside the private lender's control and banks do not treat it as urgent. Indicative timeframes for each product are set out on our settlement times and approvals page. Three things shorten the timeline more than anything else:

1. Making the enquiry on day one, not once other options have been exhausted.

2. Supplying the security address, current debt, the DPN amount and the proposed exit at first contact, so terms can be issued without a round of follow-up.

3. Instructing solicitors early, in parallel with the valuation rather than after it.

It is also worth saying clearly: missing the 21 day deadline is serious but it is not the end of the matter. The liability remains payable and recovery action may begin, but paying the company debt still reduces the parallel director liability. Directors who are past day 21 should still take advice rather than assume nothing can be done.

What lenders look at in a DPN scenario

• Equity, measured against peak debt. Not just today's balance, but the total exposure at the end of the term including capitalised interest and fees. Our LVR and lending scope page sets out how this is calculated.

• A credible exit. Refinance to a bank once the tax position is clean, sale of an asset, or a contracted receivable. An exit that depends on the business trading out of difficulty will be examined closely.

• Whether the underlying business is viable. A lender funding a business that cannot service or repay the facility is not helping the director.

• The purpose of the funds. Paying a company tax liability is a business purpose. Loans of this kind are business-purpose lending.

• Who owns the security and who is borrowing. Where the property is held personally and the debt is the company's, the structure needs to be set up correctly from the start.

When borrowing is the wrong answer

Private lending is a solution to a timing or structure problem. It is not a solution to an unviable business, and a director should be told that plainly rather than sold a facility.

Borrowing against the family home to pay a company tax debt is a serious decision that converts a company liability into secured personal exposure. It is generally the wrong course where:

• the business cannot service the new facility or execute the proposed exit

• the DPN is one of several unmanageable liabilities rather than an isolated problem

• there is insufficient equity, so the loan would only partially clear the debt on a lockdown notice

• the notice is non-lockdown and a restructuring or administration path, taken on professional advice, produces a better outcome for the director

• a valid defence may be available

The ATO sets out limited statutory defences, including circumstances where a director did not take part in management for reasons such as illness, or where the director took all reasonable steps. Courts have held that relying on fellow directors or professional advisers is not itself a defence. Whether a defence is available is a legal question for a lawyer, not a lender.

The first 48 hours: a practical checklist

1. Note the date on the notice, not the date it arrived, and count 21 days from there.

2. Confirm your address details registered with ASIC are current.

3. Send the notice to your accountant or registered tax agent the same day.

4. Establish whether the liability was reported within 3 months of its due date. This single fact determines which options exist.

5. Take advice from a lawyer or registered liquidator on the options available for your notice type.

6. If payment is the likely route, begin the funding conversation in parallel rather than sequentially.

7. Obtain a payout figure or current balance so the amount to be funded is known rather than estimated.

8. Do not resign in the belief that it removes liability. It does not.

Frequently asked questions

How long do I have to respond to a director penalty notice?

Twenty one days. The ATO states the period starts on the day it posts the notice or leaves it at the address registered with ASIC, not the day it is received. Directors should count from the date on the notice and assume they have less working time than 21 full days.

What is the difference between a lockdown and a non-lockdown DPN?

It depends on when the company reported the liability. Where PAYG withholding or GST was reported within 3 months of the due date, the penalty can be remitted by paying in full, appointing an administrator, appointing a small business restructuring practitioner, or winding up. Where it was reported later than that or never reported, payment in full is the only option that removes the penalty.

Can I avoid a director penalty by resigning?

No. The ATO confirms a former director remains liable for amounts due before resignation, and for amounts that became due afterwards but relate to a period when they were still a director. Courts have also confirmed resignation does not alleviate the penalty.

If there are two directors, do we each owe half?

No. The director penalty is a parallel liability, so each director is likely to be liable for the full amount. Payments made by the company or by either director reduce all of the linked liabilities equally, so the ATO does not collect more than the debt, but each director remains exposed to the whole sum until it is cleared.

Can I borrow against my property to pay a director penalty notice?

It is possible where there is sufficient equity, an acceptable security property and a credible exit strategy. Paying a company tax liability is a business purpose, so these are business-purpose facilities. Availability, loan amount, pricing and timing are subject to assessment, valuation, legal due diligence and lender approval in every case. Private lending for business owners explains how these facilities are typically structured.

Will a loan settle within 21 days?

It can, but it should not be assumed. First mortgage transactions over standard security move fastest. Second mortgages often depend on the existing lender providing consent or a priority deed, which is usually the longest step and is outside a private lender's control. Directors should start the funding conversation on day one rather than after other options have been exhausted.

What if the 21 days has already passed?

The liability remains payable and the ATO may commence recovery. Because the penalty is a parallel liability, paying the company debt still reduces the director's personal liability. Directors in this position should take professional advice promptly rather than assume the position is fixed.

If you are facing a DPN deadline

If a director penalty notice is driving a funding deadline, the useful first message is a scenario, not a general enquiry. Send the security address, the estimated value, the current debt against it, the amount shown on the notice, the date on the notice and your proposed exit. Our credit team will review it and come back with indicative terms, or tell you promptly if we cannot assist so you can pursue other options without losing days, contact the team directly.

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Important: This article is general information about how the director penalty regime operates. It is not legal, tax, accounting or insolvency advice, and it does not take account of your circumstances. Innovate Funding is not a law firm, a registered tax agent or a registered liquidator. Directors who receive a DPN should obtain advice from appropriately qualified professionals immediately. All lending referred to is business purpose and is subject to assessment, valuation, legal due diligence and lender approval. No loan, amount, rate, timeframe or outcome is offered or guaranteed.

Sources: Australian Taxation Office, Director penalties (last updated 16 April 2026); ATO Law Administration Practice Statement PS LA 2011/18.