Restructurings spike: are DPNs the cause?
Last month we witnessed an interesting phenomenon – around 300 Small Business Restructuring appointments were made in just two days. When you consider the usual number is between 15 and 40 SBR appointments a day, there’s obviously something going on behind the scenes that’s led to this spike.
One possible explanation could be the massive increase in Director Penalty Notices (DPNs) and warning notices being issued by the ATO. In 2023-24, the ATO issued 26,702 DPNs worth $4.4 billion (a 50% jump from FY2022-23) and 6,150 garnishee notices – and it doesn’t look like the ATO is letting up any time soon. Even former directors (whether through resignation or because a company has been wound up), ‘straw’ directors, and some who didn’t even know they were directors are getting caught in the DPN net – and they have just 21 days to pay up. Which is why it’s crucial to seek advice swiftly.DPNs have been described as the ATO’s ‘weapon of mass director destruction’ – and they are certainly spurring a lot of directors to take action, which may have led to a surge in restructuring, whether via SBRs or Voluntary Administrations/DOCAs. According to the latest Corporate Insolvency Index from Insolvency Australia, in FY24 there was a 219% increase in companies restructuring. It’s a trend we have certainly witnessed, with restructuring matters and inquiries on the rise.
DPNs are striking fear into the hearts of directors around the country. If you receive one, you can’t afford to muck around. Not complying with a DPN has severe consequences. Directors can be held personally liable for the company’s tax / superannuation debt, face legal action by the ATO, may receive garnishee orders (a legal process that instructs a third party to deduct payments directly from a debtor’s wage or bank account), and can even risk bankruptcy.
A DPN can come in the form of a Non-Lockdown DPN, which is the most common, or a Lockdown DPN. With a Non-Lockdown DPN you have a 21-day window for compliance (and it’s important to note that the countdown begins upon the date of the DPN). So, it’s important not to ignore it.
We recently received an anguished call from the director of a wound-up company; he had moved house but hadn’t notified ASIC, and sometime after he received a DPN, but the 21-day period had lapsed. It means he’s personally liable for almost $1 million in tax debt and will likely have to declare bankruptcy as a result. (Therein lies a lesson: when you change address, notify ASIC immediately!)
WLM can help
If you have unpaid withholding tax or SGC debt, contact your tax agent to discuss the risks of the DPN. A DPN will usually be uploaded to the tax portal of the individual, shortly after being issued. So, if there is a DPN risk, then a review of the portal can provide clarity. However, if that concern exists, it may also be time to reach out to an insolvency specialist to discuss the situation and work through options.
WLM has built strong connections with network of credible and experienced professionals who can assist you and your business in all facets. If you would like assistance with navigating the challenges facing businesses and individuals, reach out to WLM today.
Author
Andrew Spring is Partner at Jirsh Sutherland Insolvency Solutions. Andrew has over 19 years experience in corporate recovery and insolvency gained through working in Australia and the UK, where he assisted distressed businesses. Learn more here.
