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Receiving ATO notices can be a cause for concern, especially when it escalates to the point of legal action. Understanding the potential consequences of non-engagement and taking immediate action is crucial to safeguard your business. In this blog, we will explore two critical ATO notices—Director Penalty Notices (DPNs), Garnishee Notices, and Statutory Demands—and outline the necessary steps you should take to mitigate their impact.
Director Penalty Notice (DPN)
Personal Liability: A Director Penalty Notice is a powerful tool used by the ATO to enforce tax obligations. If you receive a DPN, it means you may be held personally liable for your company’s debts if you fail to act within 21 days. Even if you are newly appointed as a director, you can still be held accountable for historical liabilities if left unpaid beyond three months of your appointment. Two types of DPNs exist:
Non-lockdown DPN
Issued when your tax debt remains unpaid but is reported within three months of the due date. You have four options: pay the amount in full, appoint a voluntary administrator, appoint a small business restricting practitioner or place your company into liquidation.
Lockdown DPN
Issued when your tax debt remains unpaid and unreported within three months of the due date. You have only one option: pay the debt in full to avoid personal liability.
Take immediate action within the 21-day period, considering available options. Ignoring a DPN can lead to personal liability and court proceedings that can jeopardizing your personal financial position and that of your business.
Garnishee Notice
Swift Action Required: A garnishee notice is a legal order sent by the ATO to a third party holding or owing money on your behalf. This includes financial accounts, tax refunds, employers, accountants, trade debtors, contractors, and superannuation funds. Upon receipt of a copy of the garnishee notice, immediate action is crucial.
Check if the garnishee notice is valid, and if your funds have not been transferred yet, act swiftly. Contact the ATO to negotiate a withdrawal of the notice, especially if it is the first communication regarding an outstanding tax debt. If you suspect an error, we can refer you to a specialist tax lawyer for advice. Failure to act will result in the ATO accessing your funds, causing further strain on your business’s cash flow and resources.
Statutory Demand
Act Promptly to Avoid Winding Up: A statutory demand is a formal request from the ATO, allowing you 21 days to pay your debts. It is a legal document issued under the Corporations Act. Key elements of a statutory demand include the amount owed, payment terms, your name and registered ATO office, payment information, and supporting documents. Responding promptly is crucial, but there is no need to panic.
Pay your debt or set up a payment plan within the 21-day period. Seek assistance from a restructuring and insolvency professional if payment is not feasible. Taking proactive steps before the deadline gives your business a better chance of survival. Failure to pay or start paying your debt may result in your company being presumed insolvent, potentially leading to winding up procedures initiated by the ATO.
Facing ATO notices can be overwhelming, but taking immediate action and seeking professional help are vital steps to protect your business. Non-engagement can lead to severe consequences, including personal liability and financial instability.
If you have a client facing financial difficulties and needs to turn things around, contact us today to set up a meeting. We’re experts in financial restructuring and in the other turnaround strategies needed to get a business back on track.