We’ve previously explained the nature of statutory demands. In short, they are a form of demand that an individual, partnership or company can send to a debtor company to require repayment of an undisputed debt within 21 days.
If the debtor company fails to either pay the debt or apply to a State Supreme Court or the Federal Court to set aside the demand within the 21-day period, then that company is presumed insolvent under the law. This means that it can then be wound up by a further application to the court.
Statutory demands can either be supported by a court judgment which forms the basis for the debt, or by an affidavit that “verifies that the debt, or the total of the amounts of the debts, is due and payable by the company”.
In this article, we will look at two lesser-understood scenarios:
- Where the affidavit accompanying the demand was sworn before the demand; and
- Where the debtor is an incorporated association.
Can a Demand be Verified Before it Has Been Made?
Courts in various states and territories have faced situations in which statutory demands have been served on debtor companies accompanied by affidavits which pre-date them.
The question these courts have had to answer is – can an affidavit which pre-dates a statutory demand “verify” that the debt being claimed is due and payable?
The (logical) answer is no. The relevant date to verify a debt “is” due and payable is the date of the demand (or perhaps even after). In practice, this means that a court can set aside a statutory demand if it is served on a company and accompanied by an affidavit from an earlier date.
Just because it is defective, does not mean the debtor company cannot simply ignore the demand. If the company does make an application within 21-days, then the demand will likely be upheld as a proper basis upon which a winding up order can be made.
Can a Statutory Demand be Effective Against an Incorporated Association?
Oddly enough this depends on the state in which the particular association is registered.
Incorporated associations are clubs, societies or other (often not-for-profit) groups that become corporate entities. State-based legislation governs these associations and each state, and territory has the power to determine to what extent the Corporations Act 2001 (Cth) (“the Corporations Act”) applies.
Section 150 of the Associations Incorporation Reform Act 2012 (Vic) says that Part 5.4 of the Corporations Act applies in Victoria. This means that the statutory demand process can be used in respect of Victorian incorporated associations. In contrast, Part 5.4 of the Corporations Act doesn’t apply in NSW. So, statutory demands are ineffective to create a presumption of insolvency for associations incorporated in NSW.
If you then served a statutory demand on an incorporated association in NSW, it could ignore the demand without legal consequences (see In the matter of My Peace Incorporated [2014] NSWSC 1906).
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If you have any questions about serving or setting aside a statutory demand, get in touch with our debt recovery team on 1300 544 755.
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