Have you received a Statutory Demand?
After a 2 year hiatus the ATO has recently started issuing Statutory Demands.
Some believe you cannot negotiate once the ATO issue a Statutory Demand and feel their only option is to liquidate the company. This is not true but let’s start with a little information on Statutory Demands issue by the ATO……
It is issued under s459E of the Corporations Act and is also mostly referred to as a s459E by ATO staff. A Statutory Demand is a formal demand made by a creditor for payment of a debt. In this blog I’ll explain the nature of this type of notice when issued by the ATO and what it means for your business. The good news is that a Statutory Demand doesn’t automatically mean you have to wind up, there’s still an opportunity to move forward. Issued selectively where strong action is indicated, the ATO has begun issuing this type of notice to some companies in certain instances.
This is never the ATO’s first step but rather an action taken reluctantly as a consequence of a lack of engagement or avoidance. They have more than one course of action available to them to recover tax and superannuation debts and if you haven’t paid/are unable to pay, have avoided them by not arranging a payment plan, or have repeatedly defaulted on previous payment arrangements, the ATO will be forced to take legal action. The type of notice issued will be appropriate to the specific situation and whether they are dealing with a sole trader, partnership, trust, or company.
What does a Statutory Demand entail?
It is a formal demand for payment of a debt made by a creditor. Most importantly, it’s a kind of written warning of the intention to prove insolvency and start legal proceedings to wind up your company.
Receiving a Statutory Demand means that if you fail to settle your debt or reach an arrangement that’s acceptable to the creditor, they may start court proceedings to wind up the company. A Statutory Demand issued by the ATO demands you either pay the debt in full or have the Statutory Demand set aside. So, the very real consequence of this notice is the compulsory wind up of your business
However, it’s important to note that any payment plan negotiations the ATO enter into within the 21-day period would invalidate the legal power of the Statutory Demand. Negotiating a payment plan within the 21 days would mean that in the event of a default they would need to repeat the whole process to prove insolvency. This means that although the ATO technically offer a payment plan, it is unlikely a payment arrangement would be approved in the first 21 day period.
If you don’t act, here’s what may happen. Being served with a Statutory Demand is an initial stage in the process of insolvency. Ignoring this notice will be taken as evidence in court later that you refused to pay or are unable to pay and are trading insolvent. In this case your company can be wound up by the Federal Court.
According to the ATO, ‘When a court orders a company to wind up, an appointed official liquidator sells the company’s assets and distributes the resulting funds to the company’s creditors. We’ll take action to wind up a company if it has failed to pay its debts and we have not been able to negotiate a suitable payment plan”
If you don’t pay or come to an acceptable arrangement with your creditor, you leave yourself vulnerable to compulsory windup. Avoid the worst-case scenario by taking effective action. Don’t delay engaging with the ATO.
The sooner you address the debt, the better your outcome will be. Seeking advice and acting within the given time frame is crucial. Assess your options with regard to remission of the ATO’s general interest charges and penalites and management of your finances. Once the 21-day period lapses, the ATO are open to considering a proposal which in some cases will need to have a 30% upfront payment.
However, if the ATO approve a payment proposal after the 21 days and you default, the ATO can rely onthe Statutory Demand to start legal proceedings to wind up your company immediately.
At TDSA we negotiate based on an intrinsic understanding of the processes of the ATO and we help save businesses every day. For expert advice, understanding support and effective ATO negotiations, don’t hesitate to reach out to us.
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