Receiving a letter of demand can be stressful. Often those who receive letters demanding something of them find it easier just to leave it alone and simply wait and see whether the sender takes any further steps. However, this can be risky, as it may open you up to legal action that you could have avoided. This article will outline how you should respond to a letter of demand.

Why is it Important to Respond to a Letter of Demand?

Ignoring a letter of demand could quickly lead to court proceedings being commenced against you. This can be a costly and time-consuming process. If you respond to a letter of demand, you are giving yourself a chance to avoid that process and resolve the matter commercially.

Not only will court proceedings be costly and time-consuming, but it can damage your reputation both personally and professionally. Additionally, the time taken away from your business dealing with court processes and lawyers will likely impact on your business’ productivity.

Statutory Demands

If you operate your business through a company and you ignore a letter of demand, you may also find yourself receiving a ‘statutory demand’. A statutory demand is issued under the Corporations Act 2001 (Cth) and requires payment of the debt within 21 days.

If you fail to pay within 21 days or seek a court order to set aside the statutory demand, your company will be deemed insolvent and can be wound up by a court order. This will be to the detriment of your business.

What Should You Do When You Receive a Letter of Demand?

When you first receive a letter of demand, it is important to avoid sending off a fiery response to the sender – even if there is an error in their demands or you have a valid reason for not making a payment.

Before responding to the letter, your first steps should be:

  1. considering the accuracy of the claim against you;
  2. getting legal advice; and
  3. seeking further information.

1. Consider the Accuracy of the Claim Against You

Be sure to check the facts and calculations in the letter. Consider:

  • what documents they are relying on;
  • whether they have made references to the accurate invoices or contracts; and
  • if they failed to do something under the contract and therefore they are not entitled to make their claim for payment.

2. Get Legal Advice

Seeking legal advice is vital, especially if you believe you have a right to dispute the demands. Even if you are unsure, it is best to get advice from a lawyer as they may pick up on discrepancies that you may not have noticed. Furthermore, a dispute resolution lawyer can:

  • provide you with strategic advice on the best way to respond;
  • prepare a legally sound response for you; and
  • assist with negotiating a resolution.

3. Seek Further Information

Once you have given the letter consideration and sought legal advice, you may need to request further information before you can respond. If any aspects of the demand are unclear, you should also seek clarification on those points. You should request copies of documents, such as invoices or contracts, that the letter relies on if you do not have copies.

If the letter of demand has requested you respond within a short time frame, such as seven days, you should include a request for an extension of time after receiving the documents to provide your response. It would help if you also requested that they take no further action until you respond.

4. Respond to the Letter

The manner in which you respond will depend on the circumstances. If you disagree with the claims made against you, you should respond noting your disagreement and explaining why you disagree. The explanation may be brief or detailed. It should be clear why you believe you are not liable to meet the other side’s demands. Your response should be measured.

Depending on your position, you may refuse the demand entirely, or you may consider making an offer of settlement to resolve the dispute. If you do enter into commercial negotiations, you should ensure that you make it clear they are on a ‘without prejudice basis’, to ensure any statements made during your discussions cannot be used against you in court proceedings.

Key Takeaways

Receiving a letter of demand can be stressful. Unfortunately, ignoring a letter of demand may put you at risk of facing legal proceedings or your company facing insolvency. Those risks can be avoided by following the steps in this article when you receive a letter of demand. In summary, when you receive a letter of demand, you should:

  1. consider the accuracy of the claims made against you;
  2. get legal advice from a lawyer;
  3. request any additional documents or information you need from the other side to assess the accuracy of their claims; and
  4. respond to the letter as appropriate, which may be through a ‘without prejudice’ letter seeking a commercial settlement.

If you have any questions, contact LegalVision’s dispute resolution lawyers on 1300 544 755 or fill out the form on this page.

Bonnie-Anne Talese
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