Validity of Directors' Penalty Notices for $1m upheld

by Kirk Wilson

The NSW Supreme Court has upheld the validity of Directors' Penalty Notices issued to a company director in respect of unpaid PAYG liabilities of close to $1m (including interest). The director sought to challenge the notices on 3 grounds - namely, for failing to state that he was liable because of an obligation he was under when serving as a director (given that at the time of receipt of the notices he had resigned as a director), that the notices failed to state that the director was liable to pay a penalty because of an obligation which he had under Div 269 of the TAA and that separate DPNs were required for each default.

However, the Court dismissed each argument and found the notices were valid. In first case, it found that it was sufficient if the director was listed as a director on ASIC records at the time the notice was issued (as here), notwithstanding that the taxpayer had subsequently resigned as a director (ie there was an ongoing obligation notwithstanding any resignation of directorship). Secondly, the notices served upon him were not deficient merely on the grounds that they failed to state that he was "liable because of an obligation he had as a director". Instead, the Court found the notices clearly fulfilled their legislative purpose of informing the director of the amount of the unpaid liability and his personal liability if certain actions were not taken within 21 days.

Finally, the Court found there was no requirement to provide separate notices each period of default as on a proper construction of the notices, the term "notice" was contained in the body of each relevant document, and the periods and penalties to which each notice applied were then listed thereafter. As a result, this structure complied with the relevant legislative requirements. (DCT v Power [2012] NSWSC 995, NSW Supreme Court, Johnson J, 9 November 2012.)

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