Statutory Demands – What they are and when to use it

Statutory Demands are a demand for payment that you can make in a specific way upon a company that owes money to you, provided by the Corporations Act 2001 (Cth) (“Act”).

If you are owed money, you have a few different options on how to recover it. Some people issue Court proceedings, some people engage a debt recovery agency or some people simply give up. This article aims to address one way you may try if the money is owed to you by a company.

To be in compliance with the requirements of the Act, a Statutory Demand must state that Payment is required within 21 days. The Statutory Demand must be in writing and be in the form that is required by the legislation. The Statutory Demand must have been signed by the Creditor (the person owed the money) or someone on behalf of the creditor. It must also be accompanied by an affidavit verifying the debt if there is no Court judgement already in place.

Serving a Statutory Demand

As stated above, debtor company has 21 days to respond to a Statutory Demand which must be stated in the demand. The 21 day period for a response begins once the Statutory Demand has been served at the registered office of the company.

To serve the Statutory Demand, the document may be served on the debtor company by:

  1. leaving it at, or posting it to, the company’s registered office;
  2. delivering a copy of the document personally to a director of the company who resides in Australia or in an external territory, or
  3. if a liquidator or an administrator of the company has been appointed, leaving it at, or posting it to, the address of the liquidator or administrator’s office in the most recent notice of that address lodged with ASIC.

The Statutory Demand has been Served, what happens now?

Once a Statutory Demand is received by the debtor company, any one of the following may occur:

  1. the company may pay the creditor in full;
  2. the company may attempt to negotiate a payment arrangement;
  3. the company can apply to have the demand set aside by the Court (only if certain requirements are met), or
  4. the company does not respond, in which case the creditor can apply to the Supreme Court to have the company wound up.

If a company fails to comply with a Statutory Demand, the Court will presume that the company is insolvent.

Option One – Payment is made in full within 21 days

If payment is made in full, then the matter is at an end and the Statutory Demand requires nothing further to be done.

Option Two – the Debtor Company makes a payment arrangement

If an acceptable payment arrangement is reached, the Statutory Demand requires nothing further. However, if the Statutory Demand was served within a 3 month period and the payment arrangement is breached, a Court will still rely upon that specific demand to find the Company insolvent if proceedings are issued by the Creditor.

Option Three – Debtor Company applies to have Statutory Demand Set Aside

If a company receives a Statutory Demand claiming a debt, it may apply to the Court for an Order setting the Statutory Demand aside within 21 days of receiving the demand. A company can apply to have the Statutory Demand set aside if:

  • there is a genuine dispute regarding the amount claimed (for example, only half the debt is admitted as owing);
  • the debtor company believes it may be owed money (an off-setting claim);
  • that because of a defect in the demand, a substantial injustice will be caused unless it is set aside, such as service of the Statutory Demand on the Company not being properly carried out, or
  • there is some other reason why it should be set aside.

In determining whether a genuine dispute exists, the Court will not assess the merit of the dispute, but simply establish that a genuine dispute exists. If the Court found a genuine dispute did exist, the matter would need to be pursued through a Court with appropriate jurisdiction.

Option Four – Company fails to pay or respond

If the debtor company has failed to pay the amount claimed or has not made an application to set aside the Statutory Demand within the 21 day period provided to them in the demand following service, the Creditor who served the Statutory Demand can the make an application to wind the company up in insolvency through the Supreme Court. If the application is successful, the Court will appoint a liquidator to wind up the company and if there are assets/money, deal with the creditors of the company.

Issues with a Statutory Demand creditors should be mindful of

A creditor should keep in mind that while a Statutory Demand can be a speedy way to payment if the debtor makes the payment or if the company is wound up, it is possible that the company, once liquidated may have other creditors who are owed money and/or may not have the means of repaying the debt.

Therefore, creditors should discuss with their lawyer the costs of proceeding down this path and consider the risks that the money still may not be recovered.

For further information on Statutory Demands, please contact us on 5303 0281 or at reception@ballaratlawyers.net.au.

The information on this website is of a general nature only. It is not, nor is it intended to be, legal advice. You should consult a lawyer for individual advice about your particular circumstances.

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