November 2024
Statutory demands are one of the most effective ways to recover a bad debt. So, what do you do when your company receives a statutory demand? Keep reading.
Key Takeaways
- If you fail to respond or comply with a statutory demand, your company may face a winding-up application based on presumed insolvency.
- To avoid having your company wound up, you must satisfy the debt or otherwise apply to the Court to have the statutory demand set aside.
- Unless your company can prove there is a genuine dispute to the statutory demand a Court will not set aside the demand.
- You should never allow the 21-day compliance period to expire and ensure you engage a solicitor as soon as receiving the demand.
What is a statutory demand?
In Australia, a statutory demand is a formal demand made by a creditor for payment of a debt that is owed by a company. Under section 459E of the Corporations Act 2001 (Cth) (Act), a statutory demand can be issued. The demand requires the debtor company to repay the debt within 21 days from the date of receipt (or the date service is deemed to have occurred, which could be earlier than the date of receipt).
Any failure of the debtor company to comply with the demand will give a right to the creditor to seek a court order for the company to be wound up.
A creditor can issue a statutory demand if:
- the creditor is owed at least $4,000.00;
- if the debt is due and payable; and
- there is no genuine dispute about the debt.
A valid statutory demand must meet the following requirements under section 459E(2) of the Act:
- be in writing and use the recommended Form 509(H);
- it accurately specifies the debtor company and the creditor;
- it is signed by the creditor making the demand or their agent;
- the statutory demand states the name of the debtor company to which the statutory demands are made;
- the statutory demand specifies the amount of debt owed; and
- it details a location in Australia where the debt may be paid.
What is a winding-up order?
A winding-up order is a court order made when a debtor company’s directors are unable to repay its debts. This process is also known as compulsory liquidation. The court makes a winding-up application after a creditor requests it. The application usually follows a company’s failure to comply with a creditor’s statutory demand.
After a winding up liquidation, the debtor company will be liquidated. Once the company and its assets are sold the proceeds will be distributed amongst the creditors.
What to do when you receive a statutory demand?
After receiving a statutory demand, it is important to remember you only have 21 days from receipt (or the date service is deemed to have occurred, which could be earlier than receipt) to either do one of the following in order to avoid court:
- Pay the debt amount being demanded;
- Convince the creditor issuing the demand to withdraw it, or dispute it (negotiating with the creditor);
- Apply to the court for the demand to be set aside under the Act.
If a debtor company fails to undertake any of the above actions within the statutory period, it will be presumed insolvent. If the debtor company is wound up, a liquidator will be assigned to the debtor company to begin the liquidation proceedings.
If you are served with a statutory demand, you should seek legal advice as soon as possible. You may be able to challenge the statutory demand if you have grounds to do so.
Contact Us
If you have received a statutory demand and need legal assistance on how to deal with it, contact us today on (02) 9189 5288.
Craig Higginbotham and Nicole Sarraf
28 November 2024
