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If you have monies owed to you by a company, one way to recover them is to issue the debtor with a Creditor’s Statutory Demand (Statutory Demand) under the Corporations Act. The Court has said that Statutory Demands cannot be used as a means of ‘collecting debts’, however they are an option for creditors when debts are due and owing, and negotiations between the parties have been exhausted.

What is the relevant statute for recovering a debt?

Creditors can make a statutory demand for payment of a debt under section 459E of the Corporations Act, as long as the debt is due and payable. Companies that are served with a statutory demand have 21 days to apply to the Court to have it set aside.

Under section 459C of the Corporations Act, a company is presumed to be insolvent if in the three months after the day on which a winding up application is made, one of these events occurs:

  • the company fails to comply with a statutory demand;
  • a judgment remains unsatisfied; or
  • a receiver and/or manager or controller is appointed to the company.

What is the test for solvency?

The test of whether or not a company is insolvent under section 95A of the Corporations Act is whether or not the company is able to pay its debts as and when they become due and payable.

The Court has said that ‘unless the debtor demonstrates that there is a genuine dispute about the claim, the inevitable result would be a….. conclusion of insolvency if the amount were not paid’.

How does it work in practice?

Demands can only be sent by creditors who have a debt that is due and payable – and which is greater than $2,000.

The demand must be in the prescribed form (form 509H). It must:

  • be in writing;
  • be signed by, or on behalf of, the creditor;
  • correctly state the debtor’s company name and its registered office; and
  • specify a place in Australia where the debt can be paid.

If a Court judgment has not been obtained, there must be an affidavit accompanying the demand. The affidavit must verify that the debt is due and payable.

A company is taken to have failed to comply with a demand at the end of 21 days after the date of service. The time for compliance may be longer if the company seeks to set aside the demand. A demand will only be set aside if:

  • the amount in fact owed is less than $2,000;
  • there is a defect in the demand that would cause substantial injustice if it is not set aside; or
  • there is some other reason why the demand should be set aside.

Once the 21 days have expired then there is a presumption that the Company is insolvent and the creditor can take steps to wind up the company.

LegalVision cannot provide legal assistance with this topic. We recommend you contact your local law society.

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