A statutory demand is a formal demand for a debt that someone owes you. The document must be set out according to specific rules. If you fail to comply with these rules, the statutory demand will be defective, costing you time and money. This article will explain how to draft a statutory demand and the details you need to include to ensure it is effective.

Why Issue a Statutory Demand?

If you have already made attempts to recover your outstanding debt without success, you may wish to consider issuing your debtor with a statutory demand. You can issue a statutory demand to a debtor company if they owe you more than $2,000 and the payment is due. Once you ‘serve’ the demand on them, the debtor company has 21 days to:

  • pay the debt; or
  • make an application to have the statutory demand set aside.  

If the debtor company fails to comply, the court will presume that the company is insolvent. You can then apply for the court to wind up the debtor company and appoint a liquidator. The liquidator will take steps to sell the company’s assets to pay you back. It is likely that the debtor company will want to continue trading. Therefore, they will be unlikely to ignore a statutory demand.

What Details Do I Need to Include?

There are strict requirements concerning the wording and form of a statutory demand. A statutory demand must:

  • specify the debt and the amount of money that the debtor owes. If it relates to two or more debts, you must specify the total amount of the debts;
  • require the company to pay the debt within 21 days after you have served them the statutory demand;
  • be in writing;
  • be in the correct form; and
  • be signed by you or on your behalf.

If you are unsure about the content of the statutory demand, it is a good idea to seek legal assistance.

What is a Defect?

The debtor company who has received the statutory demand has a right to make an application to the court to have the statutory demand set aside if there is a defect.

A defect can be an irregularity or error relating to the:

  • statement of an amount or total;
  • description of a debt or other matter; or
  • description of a person or entity.

The court may also set aside a statutory demand for other reasons.  However, the court will likely not set aside a statutory demand that has minor defects or has defects that will not mislead the debtor company or cause them substantial injustice.

The courts have provided some examples of defects that may lead to a statutory demand being set aside. It will likely be a defect if the demand:

  • is not in the necessary form (or the affidavit in support);
  • is not addressed properly or it is not addressed to the company’s registered office;
  • includes an incorrect ACN for the debtor company;
  • specifies a debt that is not due or the debtor company is disputing it;
  • does not adequately describe the debt or fails to describe individual debts if the demand relates to more than one debt;
  • is not accompanied by an affidavit if the debt is not a judgment debt; and
  • is accompanied by an affidavit that is signed the day before the demand itself. However, this defect can be fixed by serving a new affidavit in support of the debtor.

Key Takeaways

Statutory demands are technical legal documents which you need to prepare with due care and skill. If not prepared accurately, your debtor may take steps to have the demand set aside, causing further delays and costs.  

If you need advice drafting a statutory demand or an affidavit (if necessary), you can contact LegalVision’s debt recovery lawyers on 1300 544 755 or fill out the form on this page.

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