If you’ve received an ATO statutory demand you need to make some fast decisions about your business. It’s the start of the legal debt recovery process and you have 21 days to take appropriate action.

If your company has been served with a statutory demand you must respond to it within 21 days of service or risk being left open to a court appointed liquidation.

Tax Debt Resolved would like to help you understand exactly what an ATO statutory demand means for your business.

What is an ATO Statutory Demand?

A creditor’s statutory demand for payment is a notice sent by someone you owe money to. It is a formal demand for payment of your debt. An ATO statutory demand gives you 21 days to pay your debt. If you fail to respond to the statutory demand within this time, your creditors can presume your company is insolvent. They are then within their rights to file winding up proceedings at court and seek to appoint a liquidator to your company.

A statutory demand can only be issued if there is no ‘genuine dispute’ in relation to the debt claimed in the demand. Any creditor can issue a statutory demand, however, this recovery tool is favoured by the ATO. In fact, the ATO was responsible for nearly 14% of all wind-ups in the 2015 financial year and it is continuing to be an active creditor.

What are your options if you receive an ATO statutory demand?

You have 21 days to respond to a statutory demand. You could:

  1. Pay the debt in full
  2. Have the statutory demand set aside
  3. Enter into an ATO payment plan to pay the debt over time

Alternatively, you may choose not to pay the debt and allow winding up proceedings to begin. Or if the company is insolvent, it may be most appropriate to appoint an administrator or voluntary liquidator.

Paying the debt is not the only option. You may dispute the debt and have the demand set aside.

What are the grounds for setting aside a statutory demand?

If you wish to apply to have a statutory demand set aside you must do so within 21 days. You will need to complete an application and a detailed supporting affidavit.  A statutory demand can be set aside on the following grounds:

  1. A defect in the demand
  2. An offsetting claim
  3. A genuine dispute
  4. Some other reason

For further information on setting aside a statutory demand contact us

What happens if you don’t pay the ATO statutory demand?

If after 21 days you have not responded to the statutory demand the ATO will presume your company is insolvent and begin winding up procedures:

  1. the ATO can file a winding up application at court
  2. the court will set a hearing date to consider whether to appoint a liquidator to your company. This date will generally be in about 21-28 days, but is sometimes longer.
  3. the ATO will serve the winding up notice on your company by posting it to your ASIC registered office
  4. the court will hear the winding up application. The court may decide to adjourn, dismiss or order the company’s winding-up as it sees fit.

What are your options if the ATO has filed a winding-up application at Court?

This increases the pressure on your situation as you can no longer voluntarily appoint a liquidator in a creditors’ voluntary liquidation. However, you still have time to rescue your business from liquidation or wind down its affairs in an orderly manner.

To rescue your business, you can likely avoid a court-ordered winding up by:

  1. Paying the ATO debt in full. You may need to obtain a tax debt loan to pay some or all of the debt.
  2. Entering into an ATO payment plan to pay the debt over time.
  3. Entering into voluntary administration in order to submit a genuine proposal for a deed of company arrangement (DOCA).

What can you do to avoid the ATO issuing a statutory demand?

The ATO will generally only take legal recovery action if you do not engage with them. The ATO has a number of options available if your business fails to comply with its lodgement or payment obligations.

These options include:

A director penalty notice – which potentially makes a company director liable for their company’s outstanding PAYG and/or superannuation debts.

A garnishee notice – issued without warning to your company’s bank or customers, requiring them to pay money held or owed to the company, to the ATO.

If you want to avoid recovery action from the ATO, we would recommend you:

  1. Lodge all returns on time, or at least within 3 months of their due dates, particularly quarterly BAS, monthly IAS and quarterly superannuation guarantee charge statements.
  2. Ensure you’re on an affordable ATO payment plan for your debt.
  3. Contact the ATO to renegotiate the payment plan if you expect that you will not be able to meet an upcoming instalment or lodgement payment.

What are your next steps?

Having the presumption of insolvency hanging over your head is an opportunity to take a step back and consider your options. It is often beyond the abilities of your accountant or lawyer to help you deal with this matter head-on.