Our economy is continuing to make things tough. With persistent cost-of-living pressures, high interest rates and tight cash flow, even small financial setbacks can quickly escalate. But no matter the circumstances, debts still need to be paid.
If you’re struggling to pay your debts, whether it's tax debts to the Australian Taxation Office (ATO) or debts to other creditors, ignoring them may seem easier. However, this can make your situation worse.
Friendly payment reminders that you owe money, when ignored, can turn into unfriendly contact by debt collectors and other more formal action. Recently, one of the more serious tools we are seeing the ATO use more often is the Garnishee Notice.
What is a Garnishee Notice?
A Garnishee Notice is a document sent by a creditor to a business or third party that holds, or may hold, money for you instructing them to deduct money owed to you and pay it directly to the creditor to settle a debt.
For individuals, this might include a notice to:
- Your employer or contractor
- Your bank or financial institution
- Anyone involved in the sale of your property, such as buyers, agents, or solicitors
For businesses, this might include a notice to:
- Your bank or lender
- Customers who owe your business money (trade debtors)
- Providers of EFTPOS or merchant card facilities
The notice demands that they send your funds directly to them to help reduce your debt. You’ll receive a copy of the notice.
If you’re a business director and it's your company that’s unable to pay, the ATO can also issue you a Director Penalty Notice (DPN) alongside a garnishee or separately. A DPN holds you personally liable for unpaid company debts.
ATO Garnishee vs Court-ordered
If you’re facing a Garnishee Notice, it’s important to understand where it comes from and what it means for you. There are two main types:
An ATO Garnishee Notice
An ATO Garnishee Notice is the most common type and is used to recover unpaid tax debts. The ATO directs banks, employers, or other parties holding money you’re owed to pay the ATO directly. This process doesn’t require court involvement.
A Court-ordered Garnishee
A Court-ordered Garnishee is sent by other creditors, like banks, suppliers, or lenders, to recover unpaid debts. After getting a court judgment (a garnishee order), they can ask a third party, such as your bank or employer, to pay the money directly to them.
In both cases, the result is the same. A third party (like your bank or employer) may be legally required to redirect funds to help repay the debt.
One-off vs continuing Garnishee Notices
Whether the Garnishee Notice comes from the ATO or is court-ordered, it will usually fall into one of two categories:
One-off Garnishee Notice
This type of notice directs a third party to make a single payment to the creditor. It’s often used to access funds from a bank account or the proceeds of a property sale. Once the payment is made, the notice is considered satisfied, irrespective if the debt is repaid in full or in part.
Continuing Garnishee Notice
A continuing notice requires the third party to make ongoing payments over time, usually from wages, regular income or receivables. These payments continue until your debt is cleared or the notice is withdrawn or varied.
ATO notices often use the continuing format when issued to employers, while a bank garnishee is typically a one-off.
It’s worth noting that a Continuing Garnishee can significantly reduce your income or cash flow, so it’s crucial to act early to avoid long-term financial strain.
How garnishees interact with insolvency
If you’re facing financial distress, it’s worth being aware that Garnishee Notices issued before a formal corporate insolvency appointment (like administration or liquidation) will usually continue during the insolvency process. Normally, bankruptcy stops Garnishee Notices, except if the notice was issued by the ATO.
However, once formal insolvency proceedings begin, creditors can’t issue new Garnishee Notices against the business if you owe tax or other debts.
Generally, payments received by a creditor, typically the ATO, pursuant to the notice may not be deemed an unfair preference in any subsequent insolvency appointment and therefore may not be recoverable by an insolvency practitioner (DTC of T v Donnelly & Ors 89 ATC 5071).
Received a Garnishee Notice? What now?
Receiving a Garnishee Notice can be confronting, but don’t stick your head in the sand. You still have options open to you.
The most important step is to act quickly. A swift response is the key to managing the situation and protecting your financial position.
Here are the options on the table:
Get expert advice
Understanding exactly how a Garnishee Notice impacts you or your business is crucial. Consulting with your lawyer or qualified insolvency experts like us can provide the clarity and guidance you need to make informed decisions and take the right next steps with confidence and peace of mind.
Talk to the creditor
In some cases, your creditor (such as the ATO) may agree to pause or vary the Garnishee Notice if you can commit to a reasonable repayment plan. This can help ease immediate financial pressure by spreading your repayments over time while avoiding further enforcement action.
Check the details
Garnishee Notices must follow a legal process. We can help you assess whether it’s been issued correctly and if there’s a case for appeal. For example:
- If the debt amount is wrong
- If the notice was sent to the wrong party
- If proper legal procedures weren’t followed
Review your financial position
Explore options like restructuring debt, negotiating with other creditors, or managing your cash flow more effectively. We can work closely with you to evaluate these strategies and tailor a plan that fits your unique situation, helping you regain control and move forward confidently.
Explore formal solutions
If the debt is unmanageable, you may benefit from a more structured approach, like a debt agreement, personal insolvency options, or a business restructuring process. These solutions can provide a clear framework to address your debts, protect your interests, and work toward financial stability.
Don’t wait for a Garnishee Notice to act
A Garnishee Notice might feel like a dead end, but it doesn’t have to be. With the right guidance, you can respond confidently, explore your options, and start moving forward. That said, it’s always better to get on the front foot before it reaches this point.
If you’re struggling to pay personal or business debt owed and are concerned about the issue of a Garnishee Notice, reach out to our experts now on (02)4908 4444 or (02)6580 0400 for free and confidential initial advice to help you understand your options.
