Director Penalties and Phoenixing Laws
How Director Penalty Notices work under TAA 1953 Division 269, the critical difference between lockdown and non-lockdown DPNs, anti-phoenixing provisions under the Corporations Act 2001, Director ID obligations, and safe harbour protections.
Under Division 269 of Schedule 1 to the Tax Administration Act 1953, the ATO can make a director personally liable for unpaid PAYG withholding and Superannuation Guarantee Charge via a Director Penalty Notice (DPN). The critical distinction is between non-lockdown DPNs (where returns were lodged on time and the director has 21 days to act) and lockdown DPNs (where BAS was not lodged within three months of the due date, triggering automatic personal liability that cannot be remitted through administration or liquidation). Anti-phoenixing provisions under sections 588FDB and 588FE(6B) of the Corporations Act 2001 allow liquidators and ASIC to claw back assets stripped from companies before winding up.
Last reviewed:
Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact ATO. Read our editorial scope →
How Director Penalty Notices work
Under Division 269 of Schedule 1 to the TAA 1953, the ATO can issue a Director Penalty Notice making a director personally liable for certain unpaid company tax debts. A DPN converts a company-level obligation into a parallel personal penalty equal to the unpaid amount. DPNs can be issued for unpaid PAYG withholding (employee tax withheld and not remitted), Superannuation Guarantee Charge (SGC), and in some evolving guidance, GST. Once issued, the director generally has 21 days from the date of the notice to take one of the specified actions. If the director does nothing within that window, the penalty crystallises and the ATO can sue personally, garnishee bank accounts, or take other recovery action.
Lockdown versus non-lockdown DPN: the lodgement line
The distinction between lockdown and non-lockdown DPNs is the most consequential compliance boundary for Australian company directors. Where the company has lodged BAS and SGC statements by their due dates but has not paid, a non-lockdown DPN gives the director 21 days to cause the company to pay the debt in full, appoint an administrator, appoint a small business restructuring practitioner, or begin winding up. Any of these actions extinguishes the personal penalty. Where the company fails to lodge BAS or IAS within three months of the normal due date, or SGC statements within one month after the normal due date, the director becomes automatically personally liable under a lockdown DPN. Appointing an administrator, restructuring practitioner, or liquidator does not remit the penalty. The only practical routes out are paying the debt or establishing a narrow statutory defence.
Statutory defences under section 269-35
The TAA 1953 provides narrow statutory defences for directors facing DPN liability. A director may establish that because of illness or another good reason, it was unreasonable to expect them to take part in management during the relevant period (and they did not in fact take part). Alternatively, the director may show they took all reasonable steps to ensure the company complied with its PAYG and SGC obligations, or to ensure an administrator, liquidator, or restructuring practitioner was appointed. A third defence exists where there were no reasonable steps that could have been taken. The bar for 'all reasonable steps' is high. Sleeping on lodgements, continuing to trade while ignoring ATO warning letters, or relying on the assumption that the accountant will sort it out will not satisfy the test.
Anti-phoenixing provisions and creditor-defeating dispositions
Sections 588FDB and 588FE(6B) of the Corporations Act 2001, effective from 2020, target creditor-defeating dispositions. A disposition is creditor-defeating if the consideration paid is less than market value or the best price reasonably obtainable, and the disposition prevents, hinders, or significantly delays the property from becoming available to meet creditors in a winding up. The disposition is voidable if the company is insolvent, becomes insolvent because of the transaction, or an external administration begins within 12 months. Liquidators can seek court orders to claw back assets or value. ASIC can order a person to pay an amount equal to the benefit received or transfer property back. Civil penalties and criminal offences apply to directors, officers, and those knowingly involved, including shadow advisers and associated entities.
What phoenixing looks like in practice
The pattern is consistent: move assets out of the company at undervalue to a related entity, place the old company into liquidation with debts (including ATO and employee entitlements) unpaid, and continue the same business in a new vehicle with the same controllers, premises, trading name, employees, and plant. The ATO and ASIC run joint taskforces using information-sharing, director profiling, and coordinated investigations. Director IDs allow regulators to track individuals across multiple entities and detect serial phoenix operators.
Director Identification Number obligations
A Director ID is a unique, permanent identifier for each individual who holds a directorship. It is mandatory for directors of companies under the Corporations Act 2001, directors of corporate trustees, and directors of Aboriginal and Torres Strait Islander corporations under the CATSI Act. The Director ID is administered through Australian Business Registry Services (ABRS), follows the person across all companies, and persists even if companies are deregistered. Its primary anti-phoenixing function is allowing regulators to track individuals across multiple entities over time and detect serial failures. Failure to apply when required, or using multiple or false identities, is a criminal offence with civil penalties. Acting as a director without a valid Director ID compounds other breaches.
Safe harbour protections for directors acting early
Where safe harbour conditions are met, directors are protected from insolvent trading liability for debts incurred in connection with a course of action reasonably likely to lead to a better outcome than immediate liquidation. To access safe harbour, directors must properly inform themselves of the company's financial position, take steps to prevent misconduct and keep appropriate books and records, obtain qualified advice where appropriate, and develop and implement a restructuring or turnaround plan while regularly reassessing whether it remains reasonably likely to produce a better outcome. Safe harbour is not a passive shield. It does not protect directors who delay, fail to lodge, or avoid engaging advisers. It explicitly does not cover creditor-defeating dispositions.
Statute references
- Tax Administration Act 1953, Division 269 (Director Penalty Notices)
- Tax Administration Act 1953, section 269-35 (statutory defences)
- Corporations Act 2001, section 588FDB (creditor-defeating dispositions)
- Corporations Act 2001, section 588FE(6B) (voidable transactions)
- Corporations Act 2001, section 588G (insolvent trading)
- Director Identification Number legislation (ABRS)
Frequently asked questions
What is the difference between a lockdown and non-lockdown DPN?+
Does lodging BAS on time matter even if the company cannot pay?+
Can a new director inherit liability for debts that existed before their appointment?+
What is a Director ID and why does it matter for phoenixing enforcement?+
Last reviewed: