How to respond to a director penalty notice
If you have received a director penalty notice, act now. Do not put it in a drawer, and do not wait to see what happens, because the clock on these notices is short and unforgiving. The single most important thing you can do today is get professional advice straight away, from an insolvency practitioner, an accountant, or a lawyer who handles these. The rest of this article explains, in plain English, what the notice is and why the timing matters so much.
Last updated
Why you must act now and not ignore it
A director penalty notice is the ATO's way of making a director personally responsible for certain unpaid company tax debts, and it operates on a 21-day window that runs from the date on the notice, not the date you happen to open it. That detail matters enormously, because if the notice has been posted to your registered address, the time can be running whether or not you have read it. Ignoring it does not pause anything; it simply uses up the days in which you still have choices. This is why the urgent step is to get advice the moment a notice arrives, so that someone qualified can work out which days actually matter and what your real options are inside them.
What is a director penalty notice?
In ordinary circumstances a company's tax debts belong to the company. A director penalty notice is one of the exceptions: it lets the ATO recover certain amounts, principally unpaid PAYG withholding, GST, and the super guarantee charge, directly from a director personally. It is not a bill in the usual sense and it is not a negotiation opener; it is a formal step with defined consequences. The point of the notice is to put the director to a decision within a set time, and the nature of that decision depends on which type of notice you have received, which is the part that most needs a professional eye.
Standard notices and lockdown notices
At a high level there are two kinds. A standard notice tends to arise where the company lodged its returns on time but did not pay. With this type, a director generally has options within the 21 days, which can include paying the amount or placing the company into a formal process such as administration or liquidation, and acting within the window can remit the penalty. A lockdown notice is the harder one: it tends to arise where the relevant amounts were never reported to the ATO at all, and the liability is effectively locked in, so it cannot be shed simply by entering a formal process. The distinction is consequential and not always obvious from the document, which is one more reason advice is urgent rather than optional.
How the 21-day clock works
The feature that catches directors out is that the 21 days run from the date the notice is issued, so by the time it reaches you and you have read it properly, part of the window may already be gone. There is no benefit in delay and a real cost to it, because the options that exist on day three may not exist on day twenty. This is exactly why the opening message of this article is the most important one: the moment a notice arrives, get it in front of someone who can advise you the same day if possible. Speed is not panic here; it is simply the rational response to a deadline you did not set.
How these notices are usually avoided
A director penalty notice is rarely the first sign of trouble. It usually follows a long stretch of growing tax debt, which is why the most reliable protection is to keep on top of lodgements and to watch an ATO balance before it reaches the point where a notice becomes likely. Our article on the ATO debt spiral explains how that debt compounds and why lodging on time matters even when you cannot pay. None of that helps once a notice has already arrived, of course; at that stage the only sensible move is the one at the top of this page. This is general information, not legal advice.
Offermore reads your live Xero data and refreshes every day, so a growing ATO position is visible long before it reaches the point of a notice. If any of the terms above are unfamiliar, our plain-English glossary of insolvency terms explains director penalty notices and the rest in plain language.
And to understand how ATO debt builds in the first place, our article on the ATO debt spiral covers GIC, SIC, and the difference between a payment plan that fixes the problem and one that just buys time.
14-day free trial · No credit card required