Twenty-one days on a director penalty notice

A transport business run by two directors, a father and a daughter, with eleven vehicles and a contract that had been reliable for years until the head contractor changed its payment terms. PAYG withholding and superannuation guarantee fell behind. Then an envelope arrived addressed to one of the directors personally.

A director penalty notice is the point at which company tax debt stops being only the company’s problem. It makes a director personally liable for certain unpaid amounts, and the two people at that table had a house between them.

The part that catches people

The twenty-one days run from the date on the notice, not from the day it is opened. The notice is sent to the director’s address as recorded with ASIC. If that address is an old one, or an accountant’s office that forwards mail weekly, days are gone before anybody has read a word of it. Keeping the ASIC address current is unglamorous and it is one of the highest-value administrative habits a director has.

• A DPN can cover unpaid PAYG withholding, GST and superannuation guarantee charge amounts.
• There is more than one type of notice, and which one has been issued turns on whether the amounts were reported to the ATO within the required time. The options available differ sharply between them.
• Twenty-one days is the period stated on the notice. It is not a negotiation and it does not pause while advice is sought.
• Directors are liable individually, so a second director does not halve anybody’s exposure.

The first call in this scenario was not about a loan. It was to establish two things: the date on the notice, and whether the directors already had a tax agent and an insolvency practitioner engaged. Where they do not, that gets arranged before anything else, because the finance question only makes sense once somebody qualified has confirmed what the notice actually requires.

Running the two workstreams in parallel is the whole trick. Waiting for the advisers to finish before starting the finance burns a week of a three-week clock. Starting the finance without the advisers risks arranging money for the wrong problem.

Why the ordinary answer does not fit

A mainstream bank refinance is usually the cheapest structure and, on a twenty-one day clock, it is often the wrong one. Valuation, full assessment and settlement do not reliably compress into three weeks, and a lender will not rush its own credit process because a borrower is out of time.

So the sequence gets split. Fast money now, cheaper money afterwards. Private funding settles quickly against security. The bank refinance then takes the private facility out once there is time to do it properly. The private facility is a bridge with a job and an end date, not a destination.

1. 01

   Day one — establish the clock

   Date on the notice, amounts stated, and confirmation from the tax agent of what is lodged and what is not. Advisers engaged in parallel.

2. 02

   Days two to four — security and position

   What is owned, what is already mortgaged, and what genuine equity sits behind existing debt. Here, an investment property held by one director.

3. 03

   Days five to ten — private facility arranged

   A second mortgage behind the existing first, with valuation and legals compressed. The exit is documented before the facility is drawn, not after.

4. 04

   Weeks two to three — funds applied

   Paid against the amounts as directed by the advisers, inside the period stated on the notice.

5. 05

   Months two to nine — the takeout

   A mainstream refinance is prepared without a clock on it, and takes out the private facility.

In this scenario the amounts are dealt with inside the period on the notice, the personal exposure is addressed, and the business continues trading with its contract intact. Within the year the short private facility is refinanced into a bank facility on ordinary terms.

What made it work was not clever structuring. It was that somebody opened the envelope on the day it arrived and made two phone calls instead of waiting until the weekend to think about it. Almost every version of this that ends badly ends badly because of days lost at the start.

• Advisers engaged first: the finance follows the advice, never the other way around.
• Fast, secured funding used as a bridge, with the exit agreed before drawdown.
• A mainstream refinance completed afterwards, without a deadline distorting the choice of lender.
• The ASIC-registered address updated, so the next piece of correspondence arrives where somebody will read it.

The honest limit: finance answers the money question only. It cannot change what a notice requires, extend the period on it, or substitute for advice from a registered tax agent or an insolvency practitioner. Where there is no equity and no security, funding may not be available at all, and that is exactly when the insolvency practitioner is the most important person in the room.