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30 Jul 2015

ATO continues to flex their muscles

READ TIME

3 min

A statutory demand is no empty threat.

For those that read Stephen Hundy’s (Worrells Canberra) article last month on the material increase in winding-up applications filed by the Australian Taxation Office (ATO)—this is a follow up story. It appears the ATO have shown their hand as to their intentions with delinquent taxpayers and are flexing their muscles to collect taxes, or to push the taxpayer to the wall.

Given in recent months the ATO have been busy filing winding up applications, it is likely that those applications were founded on an expired statutory demand they issued to the company.

As the ATO’s recovery measures gain momentum—separate from the statistics of winding-up applications—there appear to be just as many, if not more, statutory demands being issued that have not yet expired and not yet at the stage of the ATO commencing a winding-up application.

Worrells are seeing a material increase in company directors seeking our advice on their insolvency options—directly as a result of receiving an ATO statutory demand. In many cases the directors are unsure what the statutory demand means to them and their company. Additionally, some advisors to the directors are unsure of the possible, or likely, ramifications of receiving a statutory demand and/or when it expires.

The Corporations Act 2001 provides the recourse available to creditors and a company’s liability for such debts. A creditor serves a statutory demand on a company to claim a debt owed pursuant to section 459E. The company has 21 days after the demand is served to satisfy the debt (unless the company disputes the debt and applies to court to set aside the statutory demand under section 459G). Under section 459F, if the company fails to comply with the statutory demand the creditor can then apply to the court for an order to wind up the company in insolvency (under sections 459P-459Q). Importantly, section 459C states a company is presumed to be insolvent upon the statutory demand’s expiry, which forms the basis of the creditor’s application to wind up the company.

It must be understood that a statutory demand is not just a debt recovery measure that a company can try to negotiate its way out of. A statutory demand is the beginning of the process for a creditor to prove the company to be insolvent and seek a court winding up order to appoint a liquidator.

Given the strict and inflexible timeframes imposed, if your client receives an ATO statutory demand (or from any other creditor), directors need to act quickly to resolve the debt/claim. If a resolution is unlikely before the statutory demand expires—then contact your local Worrells office for prompt insolvency advice. We think that in many cases it is prudent for directors to appoint a liquidator sooner rather than later, and often means a better outcome for all stakeholders involved.

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