Not paying your tax debts is a serious issue, one that can lead to serious action being taken against you and your company. One of these actions is the serving of a statutory demand.
To help you understand exactly what an ATO statutory demand is, and what the implications of receiving one are, we’ve answered all the questions for you.
What is a statutory demand?
A statutory demand, officially called a ‘Creditor’s Statutory Demand’, is a formal notice served by a creditor (usually the ATO) to a company with unpaid tax debts over $2000.
After garnishee notices and director penalty notices, it’s the strongest step the ATO can take where all other attempts to reclaim the debts have failed, including agreement on a payment plan, using tax refunds and credits to cover it, and referral to an external credit agency.
What should I do if I receive a statutory demand?
If your company is sent an ATO statutory demand you have 21 days to respond. Your three options for response are:
- Pay the debt in full.
- Enter into an ATO payment plan.
- Request to have the statutory demand ‘set aside’.
What happens if I don’t respond to a statutory demand?
If you fail to respond to a statutory demand within the 21 days, the ATO may use your non-payment as evidence of insolvency. They can then begin legal proceedings.
This involves them applying to Federal Court for a hearing date to decide if a liquidator will be appointed, and issuing you with a winding up notice via your ASIC registered office.
Under what grounds can I have a statutory demand ‘set aside’?
You can apply to have a statutory demand ‘set aside’ or ignored by the court within the 21 day period, but the grounds on which you can do so are pretty limited.
One instance is where the statutory demand is defective enough to allow a serious injustice. However, this is rare.
Another is when there’s a ‘genuine dispute’ over the debt. However, this option is generally unavailable for ATO statutory demands as their assessment is seen as conclusive evidence.
What are my options if winding up procedures begin?
If winding up procedures have already begun as the result of you receiving an ATO statutory demand, you can no longer voluntarily appoint a liquidator. On the plus side, you still have a few options to save your business or wind things down smoothly.
In order to save your business you’ll need to either:
- Pay your tax debt in full – which might require taking out a tax debt loan.
- Enter into a payment plan with the ATO
- Enter into voluntary administration and convince the ATO that there is a genuine possibility of a Deed of Company Arrangement (DOCA). In this instance, the ATO may agree to adjourn the court hearing until the proposal is prepared.
- Deal with debt before it deals with you
Receiving a statutory demand from the ATO is a serious indicator of insolvency and can spell the end for your business. Because of this, even if your business is financially struggling, don’t leave your tax debts (or any other debts) unpaid.
If you’re already past this point and a statutory demand does arrive at your door, the best advice is to act fast. Contact the ATO and try and work out a plan to get your debt paid so your case won’t end with a court deciding to liquidate.
For more information on business tax debts, check out our tax debt page here.
In need of advice for your unpaid tax or other company debt? Contact us today and speak to one of our insolvency specialists.
