Company director hit with $53,000 DPN nearly a year after business deregistration

The Australian Taxation Office should clarify its legacy debt collection strategy, an insolvency practitioner says, after the tax office levelled a director penalty notice against an entrepreneur whose business was liquidated and struck off the company register last year.

Michael Brennan, director of Brisbane financial advisory firm SV Partners, says a client was last month issued a surprise director penalty notice (DPN) related to superannuation guarantee payments — despite the cafe business being liquidated and formally deregistered in November of 2022.

The business struggled to handle the COVID-19 trading downturn and pandemic-era payment agreements with its landlord, Brennan told SmartCompany.

The formal liquidation process was completed in September 2022 with the business struck off the company register two months later, leaving the former director to “lick her wounds and pay off her various guarantees.”

However, the DPN revitalised her liability for $53,000 in unpaid superannuation contributions, a debt the director assumed was addressed by the liquidation and striking-off process.

To be certain, the deregistration of a company does not shield its directors from DPNs.

Directors assume personal liability at such time the statutory payment becomes overdue, and that liability can only be remitted if they pay off the debt within 21 days.

This means late-paying directors can face a ‘lockdown’ DPN, even if their company no longer exists.

Brennan’s concern is that small business owners may now be blindsided by DPNs, given the ATO’s lenient handling of small business debts through the pandemic.

The ATO’s decision to level a DPN against the former director — so long after the business was struck off the company register — suggests directors now have greater exposure to legacy debts than many had anticipated, Brennan continued.

While acknowledging the need to pay superannuation correctly, Brennan claimed directors need more information from the ATO regarding its use of DPNs to recoup legacy debt, particularly liabilities which were amassed during the COVID-19 restrictions.

“I just think there needs to be some clarity around legacy debt,” he said.

“The ATO is trying to catch its tail, which is understandable, because that’s real money, and that’s money that should have been paid to the employees.

“But it’s a very difficult balance to strike.”

If the ATO is going to use lockdown DPNs — one of the strongest weapons in the ATO’s considerable arsenal — they should at least be issued at the onset of the liquidation process, he added.

“I think there needs to be some sort of policy decisions made about at what point does the ATO collect debt, what debt are they actually collecting in this way, and what sort of disclosure are they going to make to the public about this.”

ATO is highlighting DPN usage

While the post-liquidation DPN may have come as a surprise to the former director, the ATO’s overall rhetoric around outstanding debts, particularly unpaid superannuation guarantees, is very clear.

The ATO has confirmed DPNs are being used to corral directors who are liable for unpaid superannuation, along with tools like garnishee notices, and in extreme cases, prosecution actions.

Last month, Vivek Chaudhary, ATO deputy commissioner of lodge and pay, said unpaid superannuation was at the very top of the tax office’s watch list.

“The majority of unpaid superannuation guarantee charge — $1.8 billion — is owed by small businesses,” Chaudhary said.

“We are serious about collecting unpaid super,” he continued.

“We will be continuing to detect employers who are taking advantage and not paying the relevant entitlements to their employees.

“These employers will be held to account.”

The ATO has also revealed it is using artificial intelligence systems to detect instances of superannuation guarantee underpayment, with those platforms purportedly capable of detecting underpayments 90% of the time.