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A creditor’s statutory demand under section 459E of the Corporations Act is the formal first step toward winding up a company. The ATO issues them after other collection action has failed. The demand is a short document with an expensive consequence.
The three ways out
Within 21 days of service, the company must do one of these:
- Pay the debt in full.
- Secure or compound the debt to the ATO’s reasonable satisfaction, which in practice means an agreed arrangement, usually with a large upfront payment.
- Apply to court to set the demand aside, on the ground of a genuine dispute about the debt, an offsetting claim or a defect causing substantial injustice. Both filing and service must happen inside the 21 days.
If none happens, the company is presumed insolvent for three months, and the ATO can file a winding-up application relying on that presumption.
Where property funding fits
Option one is the clean exit, and it needs money fast. A caveat loan is assessed on the property and the exit, so it can move inside a 21-day window: indicative terms in a day or two, documents within the week, and the ATO paid directly at settlement. Security can be the company’s own property, property of a related trust, or a director’s property supporting a guarantee. See how fast can you settle.
Count the days from service, not from when the letter was opened. Demands are often served at the registered office, which may be the accountant’s address. By the time a director sees it, a week may be gone.
Do these in the first 48 hours
- Get the demand to a solicitor to check the date of service and whether there is any ground to set it aside.
- Have the accountant confirm the debt and lodge anything outstanding.
- Start the finance enquiry in parallel. Waiting for the legal advice before starting wastes days the process does not have.
Solvency comes first
Paying one creditor with new secured debt is only sensible if the company is viable once the tax debt is cleared. If it cannot pay its other debts as they fall due, borrowing to pay the ATO may prefer one creditor, deepen the loss and raise insolvent trading issues for directors. In that case the conversation is with a registered restructuring or insolvency practitioner about small business restructuring, voluntary administration or liquidation. See avoiding liquidation. This is general information, not legal advice.
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Get matched with a funderFAQ
Can the 21 days be extended?
Not by the ATO informally. Only a court can extend the time, and only if an application to set aside the demand is filed and served within the 21 days.
What if the 21 days have already passed?
The company is presumed insolvent and the ATO can apply to wind it up. Paying the debt before a winding-up application is filed, or before it is heard, can still resolve it, but get legal advice immediately.
Does paying part of the demand help?
Only if it brings the debt under the statutory minimum or the ATO agrees in writing to an arrangement. Part payment by itself does not stop the presumption.