Does small business restructuring protect me from a DPN?
Short answer
Partly. If a restructuring practitioner is appointed within 21 days of the date on a non-lockdown DPN, the director penalty is remitted. A lockdown penalty is not remitted by small business restructuring or by any insolvency appointment; only payment clears it. Whether SBR helps you depends on which type of notice you hold and whether the company qualifies for SBR at all.
What SBR does remit
Appointing a small business restructuring practitioner is one of the four actions that remit a non-lockdown director penalty. The others are paying the debt in full, appointing a voluntary administrator, or the company beginning to be wound up. The action has to happen within 21 days of the date the director penalty notice was posted.
Once the practitioner is appointed, the company's PAYG withholding, GST and SGC debts become part of the restructuring plan. The ATO votes on the plan alongside other creditors. If the plan is approved and completed, the company's debts covered by it are extinguished, and the non-lockdown director penalties for those amounts have already been remitted by the appointment itself.
This is why SBR is often raised the moment a DPN arrives. It can deal with the company's debt and the director's personal exposure in one process, provided the timing and eligibility line up.
What SBR does not cover
The gaps matter more than the protection, so read this part carefully.
- Lockdown penalties. If the company lodged BAS more than 3 months late, or lodged an SGC statement after its due date, the penalty for those amounts is a lockdown penalty. Appointing a practitioner does not remit it. The ATO can generally still pursue you personally for the full lockdown amount even if the company's plan pays cents in the dollar on the same debt.
- Anything after day 21. An appointment on day 22 does not remit a non-lockdown penalty. The company can still go through SBR, but your personal liability for the penalty stays.
- Engaged is not appointed. The clock stops when the practitioner is formally appointed, not when you sign an engagement letter. Practitioners need time to check eligibility and prepare, so the 21 day deadline is tighter than it looks.
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The eligibility trap
SBR is only available if the company's tax lodgements are up to date and employee super has been paid, and total liabilities are under $1 million. The companies most likely to receive a lockdown DPN are the ones with unlodged BAS and late SGC statements, which is exactly what makes them ineligible for SBR until those lodgements are brought up to date.
Lodging late does not fix the lockdown problem either. A BAS lodged today for a period that fell due more than 3 months ago still produces a lockdown penalty. So the sequence is often: lodge everything to become eligible, accept that the late periods are locked down, and use SBR for the company debt plus any non-lockdown amounts while dealing with the lockdown amounts personally.
If SBR is not available or would not solve the personal exposure, SBR versus liquidation and voluntary administration all deserve a look. Each remits non-lockdown penalties if it happens in time, and none of them remits a lockdown penalty.
What to do next
- Read the notice and work out which amounts are lockdown and which are non-lockdown. The notice itself states this.
- Count 21 days from the posting date and work backwards to the last day a practitioner could realistically be appointed.
- Check SBR eligibility now: liabilities under $1 million, lodgements current, super paid.
- Speak to a specialist about the lockdown amounts separately, because SBR will not remove them.
Related questions
Does an SBR plan reduce a lockdown director penalty?
Generally no. The director penalty is a parallel personal liability, and the ATO's position is that a lockdown penalty is only remitted by payment of the underlying amount. Payments made under the plan reduce the company's debt and so reduce the parallel penalty by the same amount, but any shortfall after the plan can still be pursued from the director personally.
What if the DPN arrives while the company is already in SBR?
If the practitioner was appointed before the notice was issued, non-lockdown penalties for amounts covered by the appointment are remitted, because the remitting event has already happened. Lockdown penalties are unaffected. Check the notice carefully, and ask the practitioner to confirm the position in writing.
DPN in hand and thinking about SBR?
A specialist can tell you within a day whether SBR fits and what it will not fix. Free, no obligation.
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