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A Director Penalty Notice is a formal warning that Inland Revenue sends to company directors when their business has failed to meet its tax obligations in New Zealand. It alerts directors that they're personally liable for specific unpaid taxes, including PAYE, GST, or other statutory deductions.

The notice gives directors 21 days to take action - either by paying the debt, putting the company into voluntary administration, or starting liquidation proceedings. If directors don't respond, they become personally responsible for the outstanding amount, meaning Inland Revenue can pursue them directly for payment, even after the company closes.

Inland Revenue issues Director Penalty Notices when companies fall behind on their tax obligations, particularly PAYE and GST payments. The notice serves as a crucial wake-up call for directors who might be unaware of their company's tax compliance issues or who have let tax debts accumulate.

Directors receiving these notices must act quickly to protect themselves from personal liability. Common triggers include repeated late payments, substantial tax arrears, or when a company shows signs of financial distress. Taking prompt action within the 21-day period - through payment arrangements or formal insolvency processes - helps directors avoid becoming personally liable for company tax debts.

• Standard DPN: The most common type, issued for unpaid PAYE and GST. Gives directors 21 days to act before personal liability kicks in.
• Lockdown DPN: Issued when tax debts remain unreported for over 3 months. Creates immediate personal liability without a grace period.
• Estimates DPN: Used when companies haven't lodged returns, based on Inland Revenue's estimated tax liability.
• Remission DPN: Offers partial debt forgiveness options while maintaining some director obligations.
• COVID-related DPN: Modified notices accounting for pandemic-related payment arrangements and extended compliance timeframes.

• Inland Revenue: Issues and enforces the notices, determines tax liability amounts, and pursues collection from directors when necessary.
• Company Directors: Primary recipients who become personally liable for tax debts and must respond within the 21-day timeframe.
• Tax Accountants: Help companies address underlying tax issues and negotiate payment arrangements with IRD.
• Insolvency Practitioners: Assist directors in evaluating voluntary administration or liquidation options when receiving a notice.
• Legal Advisors: Guide directors on their obligations and help contest notices when appropriate grounds exist.

• Company Details: Gather accurate business name, registration number, and registered office address from Companies Register.
• Tax Information: Compile specific details of unpaid tax amounts, tax periods, and type of tax obligations involved.
• Director Information: Confirm current director details, including full legal names and service addresses.
• Timeline Evidence: Document dates of missed payments, previous communications, and compliance history.
• Response Options: Include clear instructions about available remedies and the 21-day response deadline.
• Delivery Method: Plan for proper service through registered mail or authorized delivery to ensure legal validity.

• Header Information: Full IRD letterhead, date of issue, and unique notice reference number.
• Company Identifiers: Legal company name, IRD number, and registered office address.
• Director Details: Full name and service address of each director receiving the notice.
• Tax Liability: Precise amounts owed, tax types, and relevant tax periods.
• Legal Authority: Citation of relevant Tax Administration Act sections.
• Response Timeline: Clear 21-day deadline and consequences of non-compliance.
• Available Options: Payment methods, voluntary administration, or liquidation pathways.
• Personal Liability: Explicit statement about director's personal responsibility for the debt.

A Director Penalty Notice differs significantly from a Notice of Default in both purpose and legal implications. While both serve as formal warnings, they operate in distinct spheres of business law.

• Legal Authority: Director Penalty Notices are specifically issued by Inland Revenue under tax law, while Notices of Default can be issued by any creditor under contract law.
• Personal Liability: DPNs create direct personal liability for directors regarding company tax debts, whereas Notices of Default typically maintain the corporate veil.
• Response Timeline: DPNs have a strict 21-day response period with specific remedy options, while Default Notices often allow negotiable cure periods.
• Consequences: DPNs can result in immediate personal debt collection actions against directors, but Default Notices usually lead to contract termination or civil proceedings against the company.