Statutory Demands

11 Oct Statutory Demands

Statutory demands, when used correctly, can be a powerful weapon for creditors of a company.

What is a statutory demand?

Essentially, a statutory demand is a demand for payment of a sum of money that is owed by a company.  The demand must be set out in a certain way and meet the required formalities. It must also include a statement that the creditor believes the debt is due and payable.

Who can issue a statutory demand?

Anyone, including an individual, partnership or company, provided the debt owing is over $2,000.

What can a company do if it receives a statutory demand?

Once it receives a statutory demand, a company has two choices. It can either:

1. pay the debt; or
2. commence Court proceedings to have the demand set aside.

If Court proceedings are commenced, it is essential that the company set out all the reasons why it believes the debt is not due and payable.

How long does the company have to respond?

21 days only. This deadline is extremely strict and includes public holidays and weekends.

What if the company does nothing?

If the Company does nothing, it is presumed to be insolvent and the creditor can then seek to place the company in liquidation. If this occurs, the company is usually prevented from making any argument against liquidation that it could have raised when served with the statutory demand. Therefore, it is extremely important, if served with a statutory demand, to act quickly.

When can a statutory demand be set aside?

Where the company can show that:

1. there is a genuine dispute that the debt is due and payable; and/or
2. the creditor owes the company an amount equal to what has been demanded.

The company only needs to show that either of these situations exist. It does not have to prove that the dispute or claim would be successful, only that there really is a genuine dispute or offsetting claim that the Court would need to be deal with. This procedure is to make sure that companies are not forced to pay debts that are not in fact due and payable.

The law relating to statutory demands is technical and complex, and the consequences of failing to respond to a statutory demand, or filing a defective application, can be catastrophic. If you have been served with a statutory demand, or would like to learn more about when they can be used, contact us on 9261 8533.