When a company falls behind on its tax obligations, creditors or the Australian Taxation Office (ATO) have several tools to recover what they’re owed. One of the most serious of these is a statutory demand.
In recent years, the ATO has become increasingly assertive in issuing statutory demands, particularly for tax debts relating to GST, PAYG, and income tax. For company directors and business owners, it’s essential to understand how statutory demands work, what rights you have, and the serious consequences of ignoring one.
Contact FP Lawyers today for expert advice from Brisbane Taxation Lawyers. We can offer you support with statutory demands and tax debt recovery.
What Is a Statutory Demand?
A statutory demand is a formal notice issued under section 459E of the Corporations Act 2001 (Cth). It’s used by creditors, including the ATO, to demand payment of debts owed by a company. As of July 2021, a statutory demand can be issued for debts totalling $4,000 or more.
The company has 21 days from the date of service to either pay the debt in full, enter into a satisfactory arrangement, such as a payment plan, or apply to the court to have the demand set aside.
If the company fails to respond within that timeframe, it is presumed to be insolvent under the law. This opens the door for the creditor to apply to the court to wind up (liquidate) the company.
When Creditors Turn to Statutory Demands
While statutory demands are often used by private creditors, the ATO is one of the largest and most active users of this legal mechanism. Over the past decade, the ATO has increasingly turned to statutory demands as a fast and effective way to recover unpaid tax liabilities.
Common tax debts that can lead to a statutory demand include:
- PAYG withholding obligations
- Superannuation guarantee charges
- Goods and Services Tax (GST)
- Company income tax
Unlike some private creditors, the ATO does not need to obtain a court judgment before issuing a statutory demand. It can rely on its own records to confirm the existence of the debt. This makes the process faster—and more intimidating—for the recipient.
Before issuing a demand, the creditor will typically send reminders, warning letters, and may offer payment plans. However, if these are ignored or fail to result in payment, a statutory demand is often the next step.
What Happens If You Receive a Statutory Demand?
Receiving a statutory demand is serious. You only have 21 days from the date of service to respond appropriately.
Here’s what you need to do:
- Act immediately – Time is critical. If you miss the 21-day window, you lose your right to challenge the demand in court.
- Get legal advice – A lawyer experienced in tax and insolvency law can help assess your options.
- Check the validity of the demand – Was it properly served? Is the amount accurate? Is there a genuine dispute?
- Pay or negotiate – If the debt is accurate and undisputed, you can pay the amount in full or negotiate directly with the creditor or ATO to enter into a payment plan.
- Apply to set it aside – If you believe the demand is invalid or there is a genuine dispute about the debt, you can apply to the court to have it set aside.
Failure to act means the creditor can apply to have your company wound up on the presumption of insolvency, a process that can lead to loss of business, control, and significant reputational damage.
Can a Statutory Demand Be Set Aside?
Yes. A company can apply to the court to set aside a statutory demand under section 459G of the Corporations Act, but only on certain grounds and only within 21 days of being served.
Valid grounds include:
- Genuine dispute: There is a genuine dispute about the existence or amount of the debt.
- Offsetting claim: The company has a genuine claim against the creditor that would reduce or extinguish the debt.
- Defect in the demand: The demand contains a defect that is likely to cause substantial injustice (e.g., incorrect company name or incorrect debt amount).
- Other reasons: The demand is an abuse of process or causes unfair prejudice.
The court process:
- You must file both an application and a supporting affidavit within the 21-day period.
- The affidavit must detail the grounds for the application and include all relevant evidence.
- If you miss the deadline, even by a day, the court has no discretion to extend the time.
Because of the strict requirements, it’s essential to seek legal advice as soon as you receive the demand.
How FP Lawyers Can Help
At FP Lawyers, we understand the pressure that comes with facing a statutory demand, especially when it’s issued by a powerful creditor like the ATO.
Our experienced team can help you:
- Review the statutory demand and assess whether there are grounds to challenge it
- Negotiate with the ATO on your behalf to resolve the debt or set up a payment plan
- Prepare and file court applications to set aside invalid demands
- Defend your company if winding-up proceedings have already commenced
We act quickly and decisively, ensuring you meet critical deadlines and protect your business from insolvency proceedings.
Confidently Respond to a Statutory Demand with FP Lawyers
A statutory demand is not just another letter; it’s a legal document with real consequences. If ignored, it can lead to the forced winding up of your company.
The good news? There are often options available. Whether you want to dispute the debt, negotiate a resolution, or defend your company in court, prompt legal advice is key.
If you’ve received a statutory demand or are concerned about your company’s tax position, contact FP Lawyers today. We’re here to help you protect your business and move forward with confidence.