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26 August 2025

Director Penalty Notices - what SME directors need to know

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Navigating ATO enforcement with confidence

As the Australian Taxation Office (ATO) intensifies its enforcement efforts, small and medium enterprise (SME) directors are increasingly exposed to personal liability through the Director Penalty Notice (DPN) regime. Understanding your obligations and acting swiftly can make all the difference.

What is a Director Penalty Notice?

A DPN is a formal notice issued by the ATO that makes company directors personally liable for unpaid tax obligations, including PAYG withholding and superannuation guarantee charges. Once issued, directors have 21 days to take action and:

  • Pay the outstanding liabilities

  • Appoint an administrator

  • Initiate the company’s winding-up process

Failure to act within this timeframe can result in legal proceedings and significant financial consequences.

Recent court decisions - what they mean for you

Australian courts have consistently upheld the strict application of the DPN regime. However, they also recognise valid defences if properly substantiated. Here are some key decisions which demonstrate some creative measures directors have employed to avoid personal liability for a DPN:

  • Snell v DCT [2020] NSWCA 29

    Minor discrepancies or ATO delays don’t invalidate a DPN. Illness defences must cover the full period of default.

  • Brown v Commissioner of Taxation [2020] FCA 817

    The court remitted three DPNs for reconsideration after the ATO failed to consider the director’s defences. Always request and review the Commissioner’s written reasons.

  • Mandalinic v Stone (Liquidator) [2023] FCAFC 146

    Only a liquidator, not a director, can challenge a tax assessment once a company is in liquidation.

  • DCT v Ziccardi [2023] WASC 58

    A director avoided summary judgment by proving they took “all reasonable steps,” including commissioning an audit and attempting to sell assets.

  • Perin v ASIC [2024] WASC 38

    Demonstrated the extreme measures required to comply with a DPN. Even tax debts of deregistered companies can return to haunt directors.

  • Hall v CAP Security [2023] FCA1237

    A former director successfully complied with a DPN by becoming a creditor and winding up the company. Ex-directors are not immune unless they act.

Practical takeaways for SME directors

  • Time is critical: you have only 21 days to act once a DPN is issued

  • Request written reasons: always ask the ATO for written reasons and review them carefully

  • Prove incapacity fully: partial incapacity or voluntary non-involvement won’t suffice

  • Seek legal advice early: delays increase both legal and financial exposure

At Bartier Perry, we understand the pressure SME directors face when navigating the DPN regime. Our team has deep expertise in tax litigation and regulatory compliance, and we stay ahead of evolving ATO enforcement strategies. Whether you're responding to a DPN or proactively managing your tax obligations, we provide strategic, tailored advice to protect your interests.

Contact us today to speak with a specialist in DPN tax litigation.

Author: Sally Heimanis

Contributing partner: Gavin Stuart

See also in our series: ATO debt recovery crackdown - enforcement action and surge in Director Penalty Notices (DPNs)

 

This publication is intended as a source of information only. No reader should act on any matter without first obtaining professional advice. 

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