Usually, no — and that separation is the whole point of a company. A company is its own legal entity, so its debts are its debts, and your house and your savings sit behind that wall. But the wall has doors in it, and when one opens the debt stops being the company’s problem and starts being yours.
Directors are personally liable for company debts in five situations: an unpaid director penalty from the ATO, a personal guarantee you signed, insolvent trading, a breach of directors’ duties, and unpaid employee entitlements in limited cases. If a letter has just landed, the useful question isn’t whether directors are liable in general. It’s which of those five doors is open on you.
When are directors liable for company debts?
Unpaid suppliers, landlords and lenders have a claim against the company. They do not automatically have a claim against you. These are the five routes by which that changes:
| How liability attaches | What it covers | What sets it off |
|---|---|---|
| Director penalty notice | PAYG withholding, GST and the super guarantee charge | The company doesn’t pay these amounts — and whether it reported them on time decides your options |
| Personal guarantee | Whatever the guarantee covers: a lease, a supplier account, equipment finance, a bank facility | You signed it. Often years ago, often without keeping a copy |
| Insolvent trading | Debts the company took on while it was insolvent | Trading on when there were reasonable grounds to suspect the company couldn’t pay |
| Breach of directors’ duties | Compensation for the loss caused | Failing the duties of care and diligence, good faith, or proper use of position |
| Employee entitlements | Unpaid wages, superannuation and entitlements | Arrangements that avoid paying what employees are owed |
Four of the five you can see coming. The first one arrives by post.
Are directors personally liable for company debts owed to the ATO?
For three liabilities, yes. The ATO states that “you may become personally liable for your company’s unpaid amounts of: pay as you go (PAYG) withholding, goods and services tax (GST), super guarantee charge (SGC)” under the director penalty regime.
Company income tax isn’t on that list. Neither are supplier invoices or commercial loans. A director penalty notice hits three things hard rather than everything lightly.
The detail that quietly costs directors their options is the clock. The ATO is explicit: “the 21 days starts on the day we post the DPN or leave the DPN at the address registered with ASIC.” Not the day you opened it. If the address ASIC holds for your company is an old accountant’s office or a place you’ve moved out of, days are being spent before the envelope reaches you. Our full breakdown of the notice itself, including the difference between a lockdown and a non-lockdown DPN, is on our director penalty notice page.
Are directors personally liable for GST?
Yes — GST has sat inside the director penalty regime alongside PAYG withholding since 2020, which still surprises directors who remember the older, narrower rules. If the company’s GST is unpaid, it can become your GST.
What about unpaid superannuation for directors and staff?
Unpaid super catches directors out more than the other two, because it doesn’t feel like a tax debt while it’s accruing. The super guarantee charge sits in the same regime, and the reporting test on it is stricter: the statement has to be lodged by its due date, not within a grace window.
What does “parallel liability” mean for a director penalty?
It means the ATO isn’t trying to collect the same money twice. In the ATO’s words, “a director penalty is a parallel liability. This means the director’s liability mirrors the company’s liability, so any payments made to either the company’s liability or the director’s liability will reduce the liability for both equally.”
So money the company finds still counts against your personal exposure. It works the other way too: the ATO can recover from you by “offsetting any of your tax refunds or credits against the director penalties,” so a personal refund you were counting on may simply not arrive.
Can directors be liable for company debts through insolvent trading?
This is the exposure with no cap on it. Directors have a duty to stop the company incurring debt once it can’t pay its way, and ASIC’s guidance for directors facing insolvency puts the test simply: “a company is insolvent if it is unable to pay its debts when they fall due.”
Before the company takes on anything new, ASIC says a director must consider “whether you have reasonable grounds to suspect the company is insolvent or will become insolvent.” Suspect, not know. The standard is lower than most directors assume, and hoping the next contract lands is not a reasonable ground.
The consequence is stated just as plainly, and it is the sentence on this page worth reading twice: “compensation payments are potentially unlimited and could lead to the personal bankruptcy of directors.” Where dishonesty is involved, insolvent trading is also criminal, carrying “a fine of up to 2,000 penalty units or imprisonment for up to five years.”
There is a safe harbour in the Corporations Act for directors who start developing a course of action reasonably likely to lead to a better outcome than immediate administration or liquidation. It protects directors who act early. It does nothing for directors who act late, which is the whole design.
Do personal guarantees make a director liable for company debts?
A personal guarantee is the most common route to personal liability and the least dramatic, because nothing arrives in the post — you already agreed to it. Landlords, equipment financiers, trade suppliers and banks routinely ask a director to guarantee the company’s obligations, and the signature is usually given at the optimistic start of a relationship rather than the difficult end.
If the company is under pressure, the practical step is to find out what you’ve actually signed. Ask each major creditor for a copy of the agreement and check whether a guarantee sits behind it. Far better to be surprised now than during a recovery action.
How long is a director liable after resignation?
Resigning does not draw a line under what happened while you were there. On director penalties, the ATO is direct: “if you resign as a director of the company, you can still be liable for director penalties relating to company liabilities that were due before the date of your resignation, or became due after your resignation but relate to a period when you were still a director.”
The timing of the paperwork matters too. ASIC requires that when a director resigns or retires, “the company must tell ASIC within 28 days.” Miss it and the consequence is not just a late fee — ASIC says that where notification comes after 28 days, “we will record the end date on the register as the date the changes were made, not the date the directorship ended.” Your resignation is effectively dated to the day it was lodged.
And if you are the only director, there is no exit at all: “if you are the company’s only director, you cannot resign or retire without another director to replace you.” Directors sometimes treat resignation as the escape route from a failing company. On ASIC’s own rules, it is neither quick nor retrospective.
Are new directors liable for company debts from before they joined?
There is a window, and it is short. The ATO states that as a new director “you will not be liable for a director penalty that was due before your appointment if, within 30 days of your appointment, you ensure the company does one of the following: pays the amount outstanding in full; appoints an administrator to the company; appoints a small business restructuring practitioner to the company; winds up the company.”
Thirty days, and then the company’s history is your history. If you have recently agreed to become a director of a family member’s or a friend’s company, that is the period in which to look at the lodgement record — not later, when it has become urgent.
What happens if a director can’t pay a personal liability?
This is where company debt becomes personal insolvency, and it deserves stating honestly rather than softly. If the amount can’t be paid or funded, the paths available are the personal ones: an arrangement with the creditor, a formal option such as a debt agreement, or bankruptcy.
Each of those carries a lasting public record. Personal insolvency proceedings are listed on the National Personal Insolvency Index, and AFSA says that “many of these records will remain on the NPII permanently.” That register is publicly searchable, and unlike a credit file it does not quietly expire. Your credit report is the shorter of the two: AFSA puts a bankruptcy there for “5 years from the date you became bankrupt or 2 years from when your bankruptcy ends, whichever is later.” The NPII entry outlasts both.
On the company side, options like voluntary administration and small business restructuring exist, but they involve a formal appointment. ASIC is unambiguous about who can take that role: “only a person registered with ASIC as a ‘registered liquidator’ can act as a restructuring practitioner of a company or for a restructuring plan.”
Should I speak to a free financial counsellor first?
If you would like free, independent help before speaking to anyone who charges, yes. The National Debt Helpline is on 1800 007 007, and it describes financial counselling as “a not-for-profit service” that is “always free and confidential,” delivered by counsellors who “don’t lend money or sell you anything and work only in your interest.”
We say that first because it’s true, and because anyone who won’t point you to the free option before their own is worth being careful with.
What Debt Negotiators does — and what we don’t do
We help directors work out where they actually stand: which of the five routes above applies, and what it means for the debts that follow them out of the company. We are an AFSA-registered Debt Agreement Administrator, we hold Australian Credit Licence 390820, and we are a member of the Australian Financial Complaints Authority (25029).
We are not the registered liquidator, the voluntary administrator or the restructuring practitioner, and we are not a law firm. Where a formal appointment or legal advice is the right path, we say so and help you get to the right person. What we can do is look at the company’s business tax debt and the personal liability sitting behind it in one conversation rather than five.
Every conversation with our team is confidential and judgement-free, whatever your current situation. Since 2009 we’ve helped over 15,000 Australians work towards managing their debt, and our team of 25 supports clients right across the country from our base in Bankstown, NSW.
Not sure what you’re personally on the hook for? Call 1300 351 008 or request a free debt assessment. We’ll call you back the same business day.
Written by the Debt Negotiators team — an AFSA-registered Debt Agreement Administrator (registration 1403) holding Australian Credit Licence 390820 and AFCA membership 25029, helping Australians with unmanageable debt since 2009. About our team.
This article is general information about directors’ personal liability in Australia, not legal advice or a recommendation about your circumstances. The rules and quoted passages were checked against the ATO, ASIC, AFSA and the National Debt Helpline on 17 September 2026.
