A deed of company arrangement compromises the company's debts. It does not, of itself, release a director from a director penalty, and it does not touch a personal guarantee. This is the most commonly misunderstood point in the whole process, and it is the one where the advice usually arrives a fortnight too late.
A director calls after the second creditors' meeting. The deed has been approved, the business is going to survive, and there is relief in their voice. Then they mention, almost in passing, that a letter arrived from the Australian Taxation Office a few weeks ago and they put it aside because the administration was already under way.
That is the call we would like to have three weeks earlier, every time.
The reason is a distinction that sounds technical and is not. A deed of company arrangement binds the company's creditors as to the company's debts. A director penalty is not the company's debt. It is a parallel liability of the director personally, and it sits outside the deed.
How the director penalty regime works
Under the director penalty provisions, a director becomes personally liable for penalties equal to the company's unpaid amounts of:
- Pay as you go withholding
- Goods and services tax
- Superannuation guarantee charge
The liability is automatic. It arises by operation of the legislation, not by a decision, and it accrues whether or not anyone has been told about it. What the notice does is start the clock on the director's options.
Non-lockdown notices: the 21 day window
Where the company reported the amounts on time, the notice is what we call a non-lockdown notice. The director has 21 days from the date of the notice, and within that window the penalty is remitted if the company pays the debt, or if the company appoints one of:
- A voluntary administrator
- A small business restructuring practitioner
- A liquidator
Twenty one days is not long. It runs from the date on the notice, not the date it is opened, and it is not extended because the director was away, because the mail went to an old registered office, or because an insolvency process was already being considered.
A non-lockdown Director Penalty is managed by making an appointment of an external administrator before the clock runs out.
Lockdown notices: no appointment will help
Where the company did not report the amounts within the statutory windows, the notice is a lockdown notice, and it behaves completely differently. The windows are:
- Activity statement amounts: reported within three months after the due date
- Superannuation guarantee charge: reported by the due date for the superannuation guarantee statement
Miss those, and appointing an administrator, a small business restructuring practitioner or a liquidator does not remit the penalty. The director's exposure remains, and in practical terms the only route out is payment.
This is why the order of operations matters so much. Lodgement first, appointment second. A company that brings its activity statements and superannuation statements up to date before an appointment gives its directors options. A company that appoints first and lodges afterwards may have converted a remittable penalty into one that no appointment can solve.
What the deed does and does not do
The deed compromises the company's tax debt along with everything else it binds. The director penalty is a separate liability of a separate person, and the interaction between a compromise of the company's obligation and the director's parallel penalty means that it should be dealt with expressly in the proposal.
If a director penalty is live, the treatment of it belongs in the deed proposal as a term to be negotiated with the ATO, not as something to be worked out afterwards. It is one of the reasons we engage with the ATO before a proposal is finalised rather than after it is lodged.
If a lockdown notice has already issued
The question we are asked most often is what is left once the reporting windows have been missed. The honest answer is less than the director hoped, and the options narrow with every week.
In broad terms only payment discharges the penalty, and where a company is in distress frequently impossible. It is worth establishing what the actual number is before assuming it is out of reach. The primary tax, the general interest charge and the penalties are separate components and they do not all behave the same way.
The company's position and the director's position can be dealt with together in a negotiation, which is a reason to raise the penalty as a term of the deed proposal rather than to run two separate conversations with the same creditor. What does not work is waiting. A director penalty does not lapse, and the recovery options available to the Commissioner do not require the director to be ready.
Personal guarantees survive too
The same principle applies to guarantees, and it catches people in the same way.
A deed binds the company's creditors in respect of their claims against the company. A guarantee is a separate contract creating a separate obligation, usually of the director personally. Unless the guaranteed creditor agrees otherwise, the guarantee survives the deed.
In many mid-market businesses the guarantee stack is larger than the ATO exposure, the landlord, the equipment financier, the trade credit insurer, the bank. A director can come out of a successful deed with a rescued company and an unchanged personal position, which is not what most people picture when they vote.
The remedy is not complicated, but it has to be deliberate. Map the guarantees before the proposal is drafted. Identify which guaranteed creditors are also material voting creditors, because those are the parties who have a reason to negotiate. Where a guarantee is to be released, that release has to be documented with the guaranteed creditor, in the deed or alongside it. It does not happen by operation of the deed.
The five things to do this week
- Check whether every activity statement and superannuation guarantee statement is lodged. Not paid. Lodged. That is the distinction that decides whether an appointment can help.
- Confirm the company's registered office and the addresses the ATO holds. A director penalty notice sent to a former accountant's address still runs its 21 days.
- If a notice has arrived, diarise day 21 immediately and take advice the same day. This is not a fortnight's reflection.
- Schedule every personal guarantee: creditor, amount, and whether that creditor is also a voting creditor in the administration.
- Put the director penalty and the guarantee position on the agenda for the proposal, in writing, before anything is lodged with creditors.
Why we raise it first
Directors come to a deed to save a business. That is the right instinct, and the comparison usually favours a deed on the numbers administrators themselves put to creditors, but it doesn’t cover the personal guarantees.
But saving the company and protecting the director are two different pieces of work, and only one of them is done by a successful deed. We would rather raise that in the first conversation than have it discovered in the last one.
Speak with our deed advocacy team
If a director penalty notice has arrived, or you are not certain whether the company's lodgements are up to date, the useful call is today rather than next week. We act as deed advocates for directors and their investors, and the first conversation is confidential and costs nothing.
General information only. This is not legal, tax or insolvency advice and does not take your circumstances into account. Director penalty outcomes turn on the specific amounts, the lodgement history and the dates on the notice. Obtain advice specific to your position before acting.
Sources: Division 269 of Schedule 1 to the Taxation Administration Act 1953, and published practitioner guidance on lockdown and non-lockdown director penalty notices; ASIC Report 836, Review of voluntary administration and deed of company arrangement process 2021 to 2025, published 7 July 2026
