A statutory demand can be a useful tool in pressuring a company to pay its outstanding debts. There can be serious consequences if the receiving company does not comply with a statutory demand and it can be quicker and less costly than commencing Court proceedings.
On the other hand, if you receive a statutory demand do not ignore it. There are steps you can take to have the demand set aside. The worst thing you can do if you receive a statutory demand is nothing!
What is a Statutory Demand?
A statutory demand under section 459E of the Corporations Act 2001 gives the debtor 21 days to pay the debt or apply to have the statutory demand set aside. If the debtor fails to comply with the demand, the debtor will be deemed insolvent, and the creditor can then apply to a Court to wind up the debtor company and place it in liquidation.
How a Statutory Demand Works
- A creditor may send a statutory demand to a debtor company for a debt that is due and payable if it exceeds the minimum amount of $2000. There must not be any genuine dispute over the existence of the debt. The statutory demand will need to be supported by an affidavit sworn by the creditor’s representative (unless the amount is a judgment debt).
- If the debtor company is deemed insolvent for failure to comply with the statutory demand, the creditor may apply to the Supreme Court or Federal Court within 3 months to wind up the debtor, and if successful, obtain a Court order to place the debtor company in liquidation.
- If there is a genuine dispute over only part of the debt, the debtor must at least pay the undisputed amount, or risk being deemed insolvent.
Applying to a Court to set aside a Statutory Demand
A company that receives a statutory demand will need to act quickly as it will only have 21 days to apply to the Court to set aside or vary the statutory demand. It is therefore important that a statutory demand is prepared in the correct form and complies with the legislation. If there is a genuine dispute about the outstanding debt or if it is not in the correct form then the statutory demand may be set aside by a Court order.
If a company is deemed insolvent it is significantly more difficult and expensive to prove that the debtor company is in fact solvent and should not be wound up.
Application to a Court to wind up the Debtor Company
If the debtor company has not complied with the demand it will be deemed insolvent and the creditor may apply to the Supreme Court or Federal Court to wind up the debtor company. The winding up application can be an involved and expensive process. The application will be published on ASIC’s Insolvency Notices website and will become part of the public record, impacting the debtor’s credit record.
The appropriate use of statutory demands can help creditors obtain payment of a debt or lead to a negotiated settlement of a debt. However, if you are on the receiving end of a statutory demand it is very important to act quickly and contact your lawyer.
If you would like more information on strategies for collecting outstanding debts or if you have received a statutory demand from a creditor, please do not hesitate to contact us.