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Statutory Demands: A Must Read Alert
A failure to respond to a statutory demand can have very serious consequences for a company. In particular, it may result in the company being placed in liquidation and control of the company passing to the liquidator of the company.
Statutory demands are letters written in a particular form and accompanied by an affidavit declaring the existence and undisputed nature of an alleged debt. The demand requires action within 21 days. This time frame is imposed by the Corporations Act 2001 (Cth) (“the Act”), not by the creditor/person making the demand. The time frame is therefore critical for any action that needs to be taken to avoid potential winding up.
If you ignore a statutory demand and take no action until 21 days after service, any or all of the following will occur:
- A presumption arises under the Act that your company is insolvent.
- The creditor may choose to make an application to the court seeking winding up of your company. The creditor will publicly advertise the application to wind up your company. This is a requirement under the Act.
- Any argument regarding the validity or the legitimacy of the alleged debt will no longer be available.
- If you wish to avoid your company being wound up, you will need to prove that your company is solvent. This may (and in most circumstances will) require an expert solvency report to be prepared.
- All of the above will take resources away from the business, potentially placing further financial strain on the company.
There are steps you can take to avoid unwanted consequences in the event of being served with a statutory demand.
Steps to avoid unwanted consequences from a statutory demand
- Always keep ASIC records up to date with any changes to the company’s registered and business address. This is because the Act requires the statutory demand to be served on the registered office, by pre-paid registered post only. There is no requirement for personal service on the directors or service at any other address that is not registered with ASIC as the registered address.
- Familiarise yourself with the form in which the statutory demand is presented. (See the appendix to this article)
- Immediately upon receiving the statutory demand, contact a lawyer for advice. AVOIDwaiting for the expiration of 21 days as steps can be taken prior to the expiration of 21 days that may prevent the filing of a winding up application by the creditor.
If a statutory demand is served, certain information is required in order to provide detailed legal advice.
Information Required when served a statutory demand
- Is there a dispute in relation to the alleged debt, or is there a reason why the debt should not be paid?
- What other debts are owed by the company?
- What is the company’s cash flow situation?
- What assets are owned by the company?
- What is the personal financial situation of each of the directors?
If you see a statutory demand, seek legal advice immediately.
Our Lawyers can assist you through the minefield of law relating to statutory demands and help you achieve peace of mind.
How We Can Help
Our Commercial Litigation and Insolvency Team can provide detailed guidance on how to manage the complexities that arise from statutory demands, whether through negotiations prior to the expiry of the statutory demand period or by representation in court.
This article is for your information and interest only. It is not intended to be comprehensive, and it does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.
This article was originally published on the 2nd of October 2017. It was last updated on the 19th of November 2022.
EXAMPLE STATUTORY DEMAND
(paragraph 459E (2) (e))
Corporations Act 2001
CREDITORS STATUTORY DEMAND FOR PAYMENT OF DEBT
To Company Pty Ltd ACN 123 456 789 of 123 Empty House Street, Nowheresville, 2123 in the State of New South Wales (“the company”).
- The company owes Greedy Gordon of 66 Evil Street, Hades 4123 in the State of Queensland (“the creditor”) the amount of $100,000.00, being the amount of the debt described in the Schedule.
- The amount is due and payable by the company.
- The creditor requires the company, within 21 days after service on the company of this demand:
(a) to pay to the creditor the amount of the debt; or
(b) to secure or compound for the amount of the debt, to the creditors reasonable satisfaction.
- The creditor may rely on a failure to comply with this demand within the period for compliance set out in subsection 459F (2) as grounds for an application to a court having jurisdiction under the Corporations Act 2001 for the winding up of the company.
- Section 459G of the Corporations Act 2001 provides that a company served with a demand may apply to a court having jurisdiction under the Corporations Act 2001 for an order setting the demand aside. An application must be made within 21 days after the demand is served and, within the same period:
(a) an affidavit supporting the application must be filed with the court; and
(b) a copy of the application and a copy of the affidavit must be served on the person who served the demand. A failure to respond to a statutory demand can have very serious consequences for a company. In particular, it may result in the company being placed in liquidation and control of the company passing to the liquidator of the company.
- The address of the creditor for service of copies of any application and affidavit is care of:
Pay or Else Lawyers
66 Easy Street
BRISBANE QLD 4000
Description of the Debt Amount of Debt
District Court of New South Wales, Judgment, dated 1 April 2013 $ 100,000.00
Dated: June 2013
Print name: Maximum Payne
Capacity: Solicitor for the creditor
Corporation or partnership name
(if applicable): N/A
- The form must be signed by the creditor or the creditor’s solicitor. It may be signed on behalf of a partnership by a partner, and on behalf of a corporation by a director or by the secretary or an executive officer of the corporation.
- The amount of the debt or, if there is more than one debt, the total of the amounts of the debts, must exceed the statutory minimum of $2,000.
- Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that:
(a) verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and
(b) complies with the rules.
- A person may make a demand relating to a debt that is owed to the person as assignee.
- This form was amended in 2006 as part of amendments of the Corporations Regulations 2001. For the period of 12 months after the commencement of those amendments a person may comply with paragraph 459E (2) (e) of the Corporations Act 2001 in relation to a statutory demand for payment of debt by using:
(a) the version of this form that was in force immediately before the commencement of the amendments; or
(b) this version of the form.
* Please note formatting of the example statutory demand varies slightly depending on an individual’s browser.