It’s an all too familiar scenario. A family uses a credit card to purchase life’s little luxuries – perhaps a new television or overseas holiday? Pretty soon, the credit card bill edges higher. Or perhaps a family run business has a month or two downturn and is suddenly unable to pay its creditors. Soon, you’re chased for payment. If you receive letters of demand, Statements of Claim or a Creditor’s Statutory Demand for payment, it is critical you respond promptly. Failure to do can see events take a definite turn for the worse if you ignore key legal documents. We set out below some case studies of what can happen if you bury your head in the sand, and choose to ignore your creditors.
The Sydney Morning Herald recently published a case study on a Melbourne family who were forcibly evicted from their house for failing to pay a $20,000 credit card bill. They stopped paying the minimum payments and started receiving letters of demand and other legal documents, which they chose to ignore. The credit card debt was sold to debt acquisition companies, who eventually pursued them via bankruptcy. The self-represented couple decided to appeal their bankruptcy and unfortunately lost. Throughout the appeal process, the trustee was incurring considerable legal costs. Suddenly the $20,000 credit card bill was now a total bill exceeding $290,000. And the couple lost their house. Ironically, had they acted before bankruptcy, they had the funds to pay their credit card bill.
If your company is served with a statutory demand, immediate action is required. A statutory demand is a formal, verified demand issued under the Corporations Act 2001. For example, a company receives a creditor’s statutory demand for payment of a debt exceeding $150,000, and a separate Statement of Claim for around $20,000. The Company’s business took a downturn towards the end of 2015. However, has since started rebuilding and employing more staff.
The Creditor’s Statutory Demand has expired. If a demand is issued and served and the company fails to pay the debt within 21 days from the date of service or fails to make arrangements to pay the debt, the company is presumed insolvent. The time frame is strictly enforced.
So, what can the Company do? At this point, their options are limited. There is a presumed insolvency, and now a creditor can use this to make an application to the Court to wind up the Company. Obviously, this is not great news for a Company having an upturn and regathering momentum.
Had they responded promptly to the statutory demand they could have sought to enter into a formal debt payment plan or have the statutory demand set aside through an application to the Court.
Both of these cases serve as a warning – unless you are an ostrich, burying your head in the sand and ignoring deadlines will be to your detriment. Swift action is needed to keep your options open. If you do receive court documents, you should seek immediate legal advice. Importantly, if you are unsure how to move forward, ask – you can let our disputes team know your questions on 1300 544 755.