Payment arrangement with ATO: does it stop the statutory demand 21-day clock?

Payment arrangement with ATO: does it stop the statutory demand 21-day clock?

A statutory demand issued by the ATO operated under the Corporations Act, imposes a strict 21-day deadline for compliance. Directors often assume that engaging with the ATO, especially by proposing a payment arrangement, will pause or stop that deadline.

However, negotiations alone do not prevent the timeframe from continuing to run.

Does a payment arrangement stop the statutory demand?

In most cases, no. Entering a payment arrangement with the ATO does not automatically stop the statutory demand process. The company is still required to comply within the 21-day period, unless the demand is:

• formally withdrawn, or
• otherwise resolved to the ATO’s satisfaction

Under section 459E, the demand remains valid, and if it is not dealt with in time, the company may be presumed insolvent under section 459C. this means discussions with the ATO can be progressing, but the legal risk continues in the background.

Payment plan after a statutory demand: what must be in writing?

It is possible to negotiate a payment plan or lump sum settlement after a statutory demand has been issued, but directors should not assume that informal conversations will protect the company. Any agreement should be clearly documented and set out:

• the repayment terms (instalments or lump sum)
• any reduction in the total amount owed
• the agreed timeframe for payment

If the debt is disputed, companies should also be cautious about making statements that could be treated as admissions. Relying on verbal discussions or ongoing negotiations creates risk, particularly if the statutory deadline continues to run.

If you settle, what should the creditor confirm in writing?

If a settlement is reached, the issue is what the creditor has agreed to do in return. The agreement should confirm:

• whether the statutory demand will be withdrawn, or
• whether the ATO agrees not to rely on the demand for any enforcement action

If the arrangement involves instalments, it should also set out:

• payment dates and amounts
• what happens if a payment is missed
• whether enforcement action can resume if the agreement is breached.

Without this level of clarity, there is a risk the demand could still be relied on to support a winding up application, even if payments are being made.

The Importance of Seeking Professional Advice

This article has aimed to provide general information about payment arrangement with ATO, however, every company’s exact circumstances are different. We strongly encourage directors seeking to understand whether an ATO payment arrangement affects the 21-day statutory demand response period and their legal obligations to give an insolvency professional like Dissolve to discuss your specific circumstances. Dissolve may even recommend cheaper (or free!) solutions than other insolvency firms.