When a client's ATO debt starts to become their director's problem
You usually see it first: the activity statements that stop being lodged, the running balance that grows each quarter, the payment plan that keeps defaulting. This guide covers the insolvency side of that picture from where you sit: what director penalties mean for your clients, the letters they will get, your own position as their accountant, the ways through, and when to bring us in. The director's version of the same ground is in the Director Guide, which you can send them. It is general information, not legal advice.
The signs a client needs a conversation
The legal test is whether the company can pay its debts as and when they fall due. It is about cash and timing, not the balance sheet, and you often have the clearest view of it.
- A company's activity statements more than three months overdue while withholding or GST is unpaid. Those amounts are locked down, or about to be.
- Super guarantee charge statements not lodged, or super not being paid.
- A director penalty notice, garnishee notice, statutory demand or winding up application.
- Wages or PAYG withholding going unpaid to keep the doors open.
Earlier signs
- Activity statements held back because there is no money to pay them.
- ATO debt growing quarter on quarter, or payment plans that keep defaulting.
- Suppliers moving the business to cash on delivery, or chasing overdue invoices.
- Directors lending the company money, or not able to draw a wage.
Across your whole book: the Client Health Check reads the first two of these from your agent portal reports and ranks the clients who need a conversation.
When and how to bring us in
Resolv works for company directors facing ATO debt and director penalties. We work out the director's personal position, set out the options, and run the process with the practitioners and lawyers, keeping you informed throughout. You keep the books, the lodgements and the tax advice.
- Early is better. Before a notice arrives, every option on this page is still open. Inside a notice's 21 days, some are. After them, fewer.
- From the Client Health Check, the Draft introduction link beside a flagged client opens an email in your own mail program with Resolv copied. Send it once the director has agreed.
- Or send the director our pages, so they can see their own position first.
Director penalties, and the part you control
The most useful thing you can do for a director is get every lodgement in on time, whether or not the company can pay. Whether a penalty can ever be remitted turns on when the amount was reported, not when it was paid. The one exception is a backlog that has already built up: that is a conversation before it is a lodgement.
Lockdown
PAYG withholding and GST not reported to the ATO within three months of their due date, and super guarantee charge not reported by the due date of its statement, are locked down. The director is already personally liable, and no administration, restructure or liquidation will remit it. GST has been covered since 1 April 2020.
Non lockdown
Reported on time but unpaid. A director penalty notice gives 21 days; within them the penalty is remitted if the company pays, appoints a voluntary administrator, appoints a small business restructuring practitioner, or begins to be wound up. A payment plan does not remit it, and the 21 days keep running while the client is on one. Once the 21 days are up, it is as fixed as a lockdown penalty.
Lodge on time, even when the client cannot pay
An activity statement lodged unpaid within three months of its due date keeps the director's options open. The same statement lodged a month later can take them away for good. Super has no three month grace: a super guarantee statement lodged after its due date is locked down.
In practice: when a client says there is no point lodging because they cannot pay, that is the moment lodging on time matters most. Holding your clients to it is what keeps them out of lockdown penalties.
A backlog is different: talk before it is lodged
Where a client already has a run of unlodged periods, catching them all up is not the answer on its own. Lodging crystallises the debt with the ATO, and for a period already past the lockdown point it results in a lockdown director penalty notice, which only payment clears.
In practice: work out with us what the debt is likely to be, whether the company can pay it, and what the plan is, before the backlog goes in.
Every director, and new directors
Every director is liable for the full penalty, not a share of it. A payment by any director, or by the company, reduces what the others owe. A new director becomes liable for amounts still unpaid 30 days after their appointment, so joining a board with ATO debt carries its own clock.
The letters your clients will get
Most of them start a clock. When a client forwards you one, the date on it is what matters first. The Director Guide explains each one for the director, and the I have a letter page reads a letter and gives the key date.
Director penalty notice
Makes the company's unpaid withholding, GST and super guarantee charge a personal debt of each director. The ATO can recover it 21 days after the notice.
Statutory demand
A creditor owed at least $4,000 demands payment within 21 days of service. A set aside application must be filed in the same 21 days. Do nothing and the company is presumed insolvent.
Winding up application
Once it is filed, the creditor is asking the court to put the company into liquidation. The directors can no longer appoint a liquidator of their own choosing, although an administrator can still be appointed. The client should get urgent legal advice and talk to Resolv.
Garnishee notice
Requires the bank or a customer to pay the ATO directly. Cash flow can stop overnight.
Estimate notice
The ATO's own figure for unreported withholding or super, payable as if reported, and director penalties can attach to it. A statutory declaration with the real figure is generally due within 21 days, stated on the notice.
Notice of intent to disclose
Where $100,000 or more has been overdue for more than 90 days and the business is not engaging, the ATO can report it to credit reporting bureaus. Paying or a suitable arrangement within 28 days stops it.
Bankruptcy notice
Served on a director personally, based on a court judgment of $10,000 or more. Not complying is an act of bankruptcy.
Your own position as the accountant
A few things change for you once a client is heading towards a formal appointment.
Confidentiality comes first
The Code of Professional Conduct requires a client's permission before you disclose their affairs to a third party (Tax Agent Services Act 2009, section 30-10, item 6). Talk to the director first, and introduce them to us once they have agreed.
Fees paid by a company that later fails
A liquidator can recover a payment made to an unrelated creditor in the six months before the winding up began, if the company was insolvent when it paid and the creditor received more than it would in the liquidation. Professional fees are treated like any other debt. Once a winding up application has been filed, a payment of company property can be void altogether unless the court approves it.
Books and records
Once a liquidator is appointed, they can require the company's books from whoever holds them. You cannot keep them as security for unpaid fees. The director must also give the liquidator a report on the company's activities and property within 5 business days in a creditors' voluntary liquidation or voluntary administration, or 10 in a court liquidation, and your working papers often help them do it.
Lodgements are a condition, not just compliance
Tax lodgements must be up to date before a small business restructuring plan can be put to creditors, and for a director to rely on safe harbour from insolvent trading claims. Bringing them up to date is your work; where there is a backlog, we plan the debt with you first so nothing goes in blind.
The ways through
Which one fits depends on the business, the debts, what the director is personally exposed to, and how much time is left on any notice. The earlier the conversation, the more of these are still open.
Payment plan with the ATO
Pays the debt over time while trading continues. Useful when the business is viable and the debt manageable. It does not remit a director penalty notice.
Small business restructuring
A plan to pay creditors part of what they are owed while the directors keep running the business. Admissible debts under $1 million, employee entitlements including super paid, and lodgements up to date before the plan is put.
Voluntary administration
An administrator takes control and creditors decide the company's future, often through a deed of company arrangement that keeps the business going. Available to companies of any size.
Liquidation
The company stops trading and a liquidator realises its assets for creditors. Personal guarantees and locked down penalties survive it. The business can be bought from the liquidator at a value the liquidator accepts.
Safe harbour
Protection from personal insolvent trading claims while directors pursue a plan reasonably likely to lead to a better outcome. Only available if employee entitlements are paid and tax lodgements are up to date.
Options for the director personally
A debt agreement, a personal insolvency agreement or bankruptcy, through AFSA or a registered trustee, where the director's own debts cannot be met.
About the Client Health Check
How to get the two agent portal reports and what the review shows are on the Client Health Check page itself. How your clients' data is handled, and how your IT team can check the page, is on How it works.
A client heading the wrong way? Talk to us early.
We'll look at the director's position with you and set out the options, before the ATO sets the timetable.
resolv.au · hello@resolv.au · Resolv Advisory
Lock in a time to chatWhere this information comes from
- Taxation Administration Act 1953, Schedule 1, Division 269 (director penalties: notices, remission within 21 days, lockdown, new directors); Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (GST included from 1 April 2020).
- ATO, Firmer action we may take (last updated 17 September 2026): garnishee notices, director penalty recovery 21 days after issue, disclosure of business tax debts, directions to pay super.
- ATO, Disclosure of business tax debts: $100,000 overdue by more than 90 days, not engaging, notice of intent, 28 days. ATO guidance on estimates: statutory declaration generally within 21 days.
- Corporations Act 2001: s 95A (solvency), s 459E to 459G (statutory demands), s 468 (dispositions after winding up begins), s 530B (books held by others), s 588FA and s 588FE (unfair preferences, six months), s 588GA (safe harbour conditions). Corporations Regulations 2001 reg 5.4.01AAA (statutory demand minimum of $4,000).
- ASIC, Directors: obligations to external administrators (report on company activities and property within 5 or 10 business days). AFSA, bankruptcy notices (judgment of $10,000 or more, generally 21 days).
- Tax Agent Services Act 2009, s 30-10, item 6 (confidentiality of client information).
- Resolv Advisory practice: small business restructuring eligibility and plan terms, and buying a business from the liquidator.