Case Study 1
An Unwelcome Surprise: Facing a Director Penalty Notice
We have found that most people who receive a Director Penalty Notice (DPN) either don’t understand it, or have so much else going on that they can’t really focus on it right now. It looks like yet another letter demanding payment. Basically, the DPN means that, after 21 days, the ATO can collect payment for some of the company’s tax bills (like PAYG withholding, GST, and superannuation) from your personal funds.
The Standard Response That Could Cost You: Payment Plans Aren’t Always Enough
A quick internet search generally gives the impression that the only option is to pay off the debt or go into liquidation or some sort of restructuring. For this reason, it is very common for people to call the ATO and negotiate a payment plan and then consider it problem solved. A payment plan doesn’t solve the problem. It still means that the ATO can collect the money from your personal funds. It also means if you go into liquidation or some restructuring event later (after the 21 days), you won’t get the personal liability removed. There is a third, often overlooked option, which is to work out whether the DPN is actually correct or not.
The “Cookie-Cutter” Approach
The ATO sends out a lot of DPNs. The ATO sues or takes some kind of collection action against a lot of people. This means that the claims tend to be generic, usually following a “cookie-cutter” approach. This is where it is worth looking at whether the ATO’s claim is correct or not. In our experience, these details matter and have resulted in bills being reduced or no longer pursued.
Building a Case for Dismissal: Filing a Strong Defence
In the case study covered by this video, we discuss a client who was issued a DPN and then sued by the ATO in the District Court. Our team reviewed the statement of claim and found that it was cookie cutter and did not address some of the unique circumstances of our client. Up until that time, most of the process on the ATO side appeared to be automated. We filed a defence at which time the ATO appointed a person that we could interact with.
A Win Beyond Expectation
The ATO reviewed our defence and at first demurred, asserting that we had no case. However, we took the ATO through the reasoning and they then asked for some more detail. Upon providing this detail, they came back to us with an offer to settle – each party pays their own costs. We thought that was unfair because our client had incurred legal costs, and asked for payment towards our client’s legal costs. The ATO agreed to do so.
Key Takeaways
- Act Promptly: Directors have just 21 days to act after receiving a DPN. Whether you choose to pay, restructure, or file a defence, acting within this timeframe is crucial.
- Challenge Generic Claims: The ATO often issues DPNs using standard templates. A well-prepared legal response can expose these generic claims as inadequate.
- Consider Legal Support: DPNs can impose serious financial liabilities. Seeking professional advice ensures that you fully understand your options and make informed decisions.
- Push for a Fair Outcome: If you believe a DPN was issued unjustly, challenge it. Our case study shows that persistence can lead to the ATO covering your legal fees—a significant relief in any legal battle.
Received a Director Penalty Notice?
If you’ve received a Director Penalty Notice and want to discuss your options, contact us at Adam Ahmed & Co. Our experienced team can assess your situation and guide you on the best steps to protect your financial interests.