Knowledge

The short answer is “yes”.

What is a DPN

A DPN is a statutory power where a director of a Company can be personally liable for a Tax debt. This means that the ATO can effectively pierce the corporate veil through a DPN.

There are 2 types of DPN's:

1. Non-lockdown DPN; and
2. Lockdown DPN.

The Tax debts that a DPN can be issued for include:

1. Superannuation;
2. PAYG; and
3.  

The ATO has changed how it collects debts through its powerful DPN tool. It is important to note that these changes only apply to non-lockdown DPN’s.

The main reason for these changes is due to:

1. The recent decision of Clifton (Liquidator) v Kerry J Investment Pty Ltd trading as Clenergy [2020] FCAF 5 (“Clifton”); and
2. The introduction of the Small Business Restructure (“SBR”) regime.

During the Covid pandemic the ATO put a hold to all of its debt collection.

The ATO has recommended recovery of Tax debts

We at Frank Law have noticed that the ATO is now recommencing its debt collection.

There are reports that demand letters were issued to 52,000 companies in respect of outstanding Tax debts in recent months. These demands were also sent to the director's personal address in those companies. We are concerned that the steps taken by the ATO mean that they are aiming for quick recovery of the debts by making the directors personally liable. This is a warning for any director whose company has outstanding Tax debts and lodgements, as the ATO may have you under their scope.

What is and When can a non-lockdown DPN be issued?

A non-lockdown DPN can be issued when Business Activity statements (“BAS”) and Superannuation Guarantee Changes (“SGC”) are lodged within time and the tax debt remains unpaid.

What is and When can a Lockdown DPN be issued?

A lockdown DPN can be issued when the BAS and SGC have not been lodged within the relevant time frames and the tax debt remains unpaid.

The previous DPN regime prior to the COVID Pandemic

Prior to the Covid pandemic directors could opt out of DPN's within 21 days of receipt of the DPN through the following:

1. Non-lockdown DPN:
   • Pay the Company's Tax debt in full;
   • Place the Company into administration;
   • Place the Company into liquidation; or
   • Enter into a payment plan with the ATO in accordance with section 255-15 of the Taxation Administration Act 1953 (Cth) (“TAA”)
2. Lockdown DPN
   • Pay the Company’s Tax debt in full.

Changes post Covid Pandemic

The ATO has now changed the options to opt out of the non-lockdown DPN’s being the removal of a payment plan in accordance with the s 255-15 of the TAA and the insertion of the SBR. In summary, the opt-out options of a non-lockdown DPN are now:

1. Pay the Company’s Tax debt in full;
2. Place the Company into liquidation;
3. Place the Company into administration; or
4. Appoint a Small Business Restructuring Practitioner (“SBRP”)

Why has the Payment Plan been removed

Let’s have a deep dive and look at why the ATO made these changes.

The decision in the case of Clifton was handed down in early 2020. In this decision the Court held that although there was a payment plan in accordance with section 255-15 of the TAA, this payment plan did not vary the time that the initial Tax debt was due and payable.

The Court essentially said both sections 255-10 and 255-20 of the TAA provide the Commissioner with the discretion to defer the date when payments for the debt become due.

In the circumstances, the Court held that the payment arrangement did not constitute a waiver by the Commissioner of the company's obligation to pay a Tax debt.

This decision handed down in Clifton has prompted the ATO to remove the payment plan to opt out of a non-lockdown DPN. This is an important change that all directors and accountants should be aware of.

Why has the appointment of a SBRP been inserted

The next opt out option included is the inclusion of the SBR.

Since the Covid pandemic hit, the Australian Government has been quick to change the insolvency framework to put forward a SBR. The criteria for a small business to qualify for a SBR includes:

1. Need to be a company incorporated under the Corporations Act 2001 (Cth);
2. Debts need to be below $1 million;
3. There must be no outstanding Tax lodgements;
4. Employee entitlements are paid up to date; and
5. Company or its directors are unable to use it more than once every 7 years.

The Government’s intention of the SBR is to:

1. Make debt restructuring and liquidation faster and less complex, and
2. Enable directors to remain in control of the company and continue to trade.

Key Takeaway

It is important to note there is never a cookie-cutter approach to address DPN'S (lockdown and non-lockdown) as well as outstanding Tax debts.

Small businesses and directors need to be made aware of the changes to the DPN regime and how they may be personally liable for their Company’s Tax documents.

The Clifton decision and Covid have now changed the landscape of how a director can respond to a non-lockdown DPN.

How Frank Law can assist you or your business

Frank Law's lawyers have decades of experience in assisting all entities dealing with Tax debts and restructuring options, DPN's and legal proceedings commenced by the ATO.

Frank Law can provide a no-obligation initial free 30-minute consultation and assessment for you or your client’s business. Contact us on (02) 9688 6023 to book your consultation.

This is not legal advice.