Has your company been issued with a statutory demand? A statutory demand is a formal demand to collect a debt, under s459E of the Corporations Act. This article explains what a valid statutory demand is, and how you can respond.
What is a Statutory Demand?
In short, a statutory demand is used to determine whether a company can pay its debts as and when they fall due. Creditors wanting to initiate a compulsory winding up in insolvency will first serve a statutory demand on the company owing the debt. To be valid, a statutory demand must:
- Be in writing;
- Specify the total amount of the debt(s);
- Require the company to pay the debt(s) within 21 days after service;
- Signed by or on behalf of the creditor; and
- Be in the prescribed form (found in Schedule 2 of the Corporations Regulations 2001).
You must also serve a statutory demand on the company in the prescribed form by either:
- Delivering or posting the statutory demand to the company’s registered address, or
- Personally serving it on the company director.
My Company Has Been Issued With a Statutory Demand – What Next?
It is critical that you respond to the statutory demand within 21 days of service. If you believe the company should not be required to comply with the demand, you can apply to have the court set it aside.
There are three primary ways to set aside a statutory demand:
- If there is a genuine dispute regarding the existence of the statutory demand or amount that is owed;
- If the company has an offsetting claim against the party serving the demand, which consequently reduces the debt owed below the statutory minimum (being $2000); or
- If there is a defect in the demand which would cause substantial injustice unless the court sets the demand aside.
A supporting affidavit should also accompany the application to set aside a statutory demand. The affidavit’s purpose is to provide evidence supporting why the demand should be set aside.
What Happens if the Company Neither Pays Or Responds to the Statutory Demand?
A company can be presumed insolvent if it fails to either pay the debt or apply to set aside the debt within 21 days. The party serving the statutory demand can rely on the presumption of insolvency and apply to wind up the company.
Although a company can rebut an application for winding up, the onus of proving solvency is strict. Again, responding to the statutory demand before 21 days pass is imperative.
Remember, time is of the essence! You must file and serve on the creditor an application to set aside a statutory demand and the supporting affidavit within 21 days.
LegalVision’s disputes lawyers can assist your company respond, or apply to set aside a statutory demand. We can also advise you on next steps if you are unsure how to proceed with the demand. Questions? Please get in touch on 1300 544 755.