Insolvency & Restructuring Lawyers Parramatta

Served with a statutory demand or bankruptcy notice in Western Sydney? Start with the date

If a formal demand has landed at your registered office in Parramatta, Blacktown or Penrith, or a process server has handed you a bankruptcy notice at home in Merrylands or Liverpool, the most important fact is the date it was served.

A statutory demand is a formal written demand, made under the Corporations Act 2001 (Cth), that a company pay a debt of at least $4,000. The company has 21 days after service to pay, reach an agreement with the creditor, or file and serve a court application to set the demand aside. The Federal Court's guidance says that period is strictly applied and no extension can be given. If the 21 days pass with nothing done, the company is presumed to be insolvent, meaning unable to pay its debts when they fall due, and the creditor can ask a court to wind it up.

A bankruptcy notice is the equivalent step against a person. The Australian Financial Security Authority (AFSA) issues it at the request of a creditor holding a final judgment or order of $10,000 or more that is no more than six years old. You generally have 21 days from service to pay, agree on terms, or apply to the court to set the notice aside or extend the time for compliance. AFSA says the timeframe can differ, so read the notice itself carefully. Not complying is an "act of bankruptcy" that a creditor can rely on to ask a court to make you bankrupt.

How insolvency law works in New South Wales

Insolvency law is national. Companies are dealt with under the Corporations Act 2001 (Cth) and regulated by the Australian Securities and Investments Commission (ASIC). Individuals and sole traders are dealt with under the Bankruptcy Act 1966 (Cth), administered by AFSA. There is no separate New South Wales insolvency Act. What is specific to this state is where your matter is heard and how that court runs its list.

Company matters in NSW can be filed in either of two courts, and both are in the same building: the Law Courts Building at 184 Phillip Street, Queens Square, Sydney. The Supreme Court of New South Wales hears them in the Corporations List of its Equity Division. Under the Court's Practice Note SC Eq 4, applications to set aside a statutory demand go into the Corporations Registrar's List, which can be made returnable on any Monday to Thursday and is generally conducted through the Online Court. The practice note keeps the first return date of a winding-up application out of the Online Court. Other corporations matters come before the Corporations List Judge on Mondays, and a Corporations Duty Judge is available for urgent applications. The Federal Court of Australia's NSW registry is on Level 17 of the same building.

Bankruptcy is different: only the federal courts deal with it. Creditor's petitions and applications to set aside a bankruptcy notice go to the Federal Court or the Federal Circuit and Family Court of Australia. There is a Federal Circuit and Family Court registry in Parramatta, at 1-3 George Street, but the Court provides registry services for general federal law matters in Sydney, which include bankruptcy, from the Federal Court registry at Queens Square, and says those matters are heard in its courtrooms at 97-99 Goulburn Street and 80 William Street, Sydney. For people in Western Sydney, attendance in person is therefore usually in the Sydney CBD.

Revenue NSW debts, ATO debts and when directors become personally liable

Tax debt, as well as trade debt, often sits behind an insolvency, and two separate regimes can make a director personally liable.

The first is federal. If a company does not pay its pay as you go withholding, GST or superannuation guarantee charge, the Australian Taxation Office (ATO) can issue a director penalty notice. The ATO can begin recovering the penalty from you 21 days after the notice is issued, and the ATO says that period starts on the day it posts the notice or leaves it at your address, not the day you open it. For a current director the ATO generally uses the address registered with ASIC, so an out-of-date address can cost you most of the period.

The second is a state regime that is often overlooked. Under section 47B of the Taxation Administration Act 1996 (NSW), if a company fails to pay a state tax assessment such as payroll tax, the Chief Commissioner of State Revenue can serve a compliance notice on current and some former directors. The compliance period must be at least 21 days from service. The section treats the failure as rectified if, within that period, the debt is paid, the Chief Commissioner makes a special arrangement for payment, the Hardship Review Board waives or defers payment, an administrator is appointed under Part 5.3A, or the company begins to be wound up. If it is not rectified, the director becomes jointly and severally liable, which means Revenue NSW can pursue the director for the whole amount. Revenue NSW also says it may issue garnishee notices, lodge caveats over land and start wind-up action.

Building and construction debts: security of payment and insolvency in NSW

Unpaid progress claims are a common trigger on both sides of an insolvency, and NSW has its own rules for them.

Under the Building and Construction Industry Security of Payment Act 1999 (NSW), a contractor who succeeds at adjudication and is still not paid can obtain an adjudication certificate and file it in court as a judgment debt, without the court deciding the underlying dispute. Depending on the amount, that is the Local Court (claims up to $100,000), the District Court or the Supreme Court. A judgment debt can then support a statutory demand against a company or a bankruptcy notice against an individual. Under section 25, a respondent who applies to set the judgment aside cannot bring a cross-claim, raise a defence under the construction contract or challenge the adjudicator's determination, and must pay the unpaid adjudicated amount into court as security.

The rule cuts the other way too. Section 32B of the Act says a corporation in liquidation cannot serve a payment claim or enforce one under the Act, and a pending adjudication application is treated as withdrawn.

What are the options if you or your company cannot pay?

For an eligible small company, small business restructuring under Part 5.3B of the Corporations Act lets the directors stay in control while a restructuring practitioner helps put a plan to creditors. ASIC's guidance says total liabilities must not exceed $1 million, employee entitlements that are due must be paid and tax lodgments brought up to date before a plan is proposed. The company generally has 20 business days to propose a plan, and creditors then have 15 business days to vote. The plan is accepted if a majority in value of the creditors who respond agree.

Other company pathways are voluntary administration under Part 5.3A, where an independent administrator takes control while creditors decide the company's future, and liquidation, where the company is wound up and its assets distributed. Directors also have a duty not to let a company trade while insolvent, and ASIC warns that compensation orders can be made against directors personally.

For individuals, AFSA describes bankruptcy as normally lasting three years and one day. Debt agreements and personal insolvency agreements are formal alternatives. AFSA also points people to free financial counselling through the National Debt Helpline.

How does this differ from other states?

The deadlines and thresholds above are the same across Australia because the Acts are federal. The differences are practical. In NSW your state court is the Supreme Court of New South Wales with its own Corporations List practice note and online Registrar's List; other states' Supreme Courts run their own lists. State tax debts are collected here by Revenue NSW under the Taxation Administration Act 1996 (NSW), with its own director compliance notice. And each state has its own security of payment legislation, so the NSW rule about claimants in liquidation should not be assumed to apply elsewhere.