A Statutory Demand is a demand made in the prescribed form by a creditor to a company pursuant to section 459E of the Corporations Act which demands payment of a debt within 21 days.

Failure to comply with a Statutory Demand

A failure to comply with a Statutory Demand, creates a rebuttable presumption of insolvency pursuant to section 459C of the Corporations Act, which then allows for a creditor to apply to wind up the company.

Statutory Demands are relatively inexpensive to prepare and serve on a company. Service of a Statutory Demand on a company merely requires posting it to the registered office of the company.

If you are a director of a company it is important to ensure that the registered office (as listed with the Australian Securities and Investments Commission) ASIC is up to date and that all mail posted to that address is checked regularly. Often companies only find out that they have not complied with a Statutory Demand once the company is served with an application brought by the creditor to have the company wound up.

Entitlement to issue a Statutory Demand

– The debt owing must be $4,000 or more;
– The debt should preferably be a Court judgment but can be a claim for a debt owing. However, pursuing this type of claim by way of Statutory Demand is not as certain, as discussed below.

Proceeding with the Statutory Demand

– The form must be in the prescribed form;
– Must be signed by or on behalf of the creditor;
– Unless the debt is a judgment debt the demand must be accompanied by an affidavit that verifies the debt or the total amounts of the debts and the affidavit complies with the rules as prescribed;
– The time for compliance with a Statutory Demand is 21 days;
– The demand is then served on the debtor.

What can happen after service of the Statutory Demand?

The debtor MUST within 21 days after service of the Statutory Demand file and serve an application and an affidavit if it wishes to set aside the Statutory Demand. This can be either on the basis of a defect in the Statutory Demand such that a substantial injustice would occur if it were to proceed; alternatively (and most usually) to dispute the debt, especially where the debt claimed is not supported by a judgment.

If the debt is to be disputed where it is not a judgement debt, the Court needs only find that there is a “genuine dispute”, which is not a high bar. It is only necessary to show that there is a plausible contention requiring investigation. It is only if the “debtor’s contentions are so devoid of substance” that the application will fail. On this point debtors could raise any sort of issues which may be unexpected and may possibly satisfy the Court that there is some genuine dispute.

Furthermore, if the debtor raises that there is an “offsetting amount” which is a claim which the debtor has against you as the creditor (even if it does not relate to the same transaction or circumstances which gave rise to the claimed debt) then the Court can, if it finds there is a genuine offsetting claim, reduce the amount of the claimed debt. If it falls below the $4000 minimum amount then the Court can set aside the Statutory Demand.

If the Courts set aside the Statutory Demand then it is also likely that the Court will rule against you the creditor that you pay the debtor’s costs of the application to set aside the Statutory Demand. These costs can quite quickly become substantial in such an application.

Accordingly, it is important to obtain legal advice or legal assistance in determining whether it is appropriate to follow the Statutory Demand procedure.

What happens if the statutory Demand is not met?

If the Statutory Demand is not set aside or reduced to less than $4000 and the debtor does not comply, then, within 3 months, you can apply to the Supreme Court for an order that a liquidator be appointed to the company (called winding up). If you are not a secured creditor, you will be one of the last creditors to be paid after a list of other debts being paid in priority. Accordingly, again it is important to obtain advice or assistance in respect of whether it is a worthwhile procedure to proceed by way of Statutory Demand.

Another advantage of a Statutory Demand is that the potential threat of winding up of a company may compel the debtor to pay the debt or at least enter into a satisfactory settlement of the debt or payment plan to avoid that prospect.

What if you are served with a Statutory Demand?

It is important that you must make an application with a supporting affidavit within 21 days of being served with the Statutory Demand. Please note that the Court cannot extend the time for this to be done. Further, the Affidavit must adequately set out reasons for disputing the Statutory Demand.

It is not sufficient within 21 days to have an affidavit saying that you are disputing the debt and will provide details later. If the actual affidavit that sets out the details disputing the debt is filed later than 21 days, that affidavit is not effective and the Court can dismiss the application to set aside the Statutory Demand, with an order for costs against you.

It goes without saying that if you are served with a Statutory Demand it is important to seek urgent legal advice in respect of it and whether you have any grounds to set aside the demand.

Contact Us

Get the best representation. Contact our expert commercial litigation lawyers on 1800 999 529, email mail@rmold.newwebsite.live or submit an enquiry below.

We are available to meet with you at any of our local offices (Brisbane, Gold Coast, Beenleigh, Cleveland and Jimboomba) or by telephone or video-conference.

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.