What is a Statutory Demand?
A Statutory Demand is a demand for payment of a debt by a creditor on a company pursuant to Section 459E of the Corporations Act2001 (Cth).
A Statutory Demand can be issued against a company for a debt which exceeds $2,000.00 when there is no genuine dispute as to liability for payment.
What you must do if you receive a Statutory Demand
The first thing you must do when you receive a Statutory Demand is to contact your solicitor immediately for specific legal advice. Statutory Demands have a 21 day compliance period which means that if you do not comply with the Statutory Demand or make application to the Court to set aside the Demand on the basis of a genuine dispute or some defect in the Demand , within the 21 days given, your company may be the subject of an Application to be wound up.
What if I ignore the Statutory Demand?
If you do not comply with the Statutory Demand or take action to set it aside within the 21 days, your company may be required to defend an Application for winding up. Winding up in its simplest terms is when a creditor applies to the Court for a liquidator to be appointed to the company to realise its assets to pay creditors any outstanding debts.
How do I comply with a Statutory Declaration?
There are 3 ways in which a Statutory Demand can be complied with. The first and the most obvious is to pay the amount which is being sought. This will resolve the matter and be a bar for the creditor to proceed with any winding up Application.
The second way to address a Statutory Demand is to require a creditor to withdraw the Demand setting out a defect in the Demand or giving notification of the nature of the genuine dispute which exists. For a creditor to withdraw the Demand it is necessary for the creditor to put in writing to the company that the Statutory Demand is withdrawn. This will also be a bar for the creditor to make any Application to the Court for winding up.
The third and more complex way to comply with a Statutory Demand is an Application to the Court to have the Statutory Demand set aside. This Application requires evidence to be placed before the Court which will set out one of the following:
- The amount in fact owed is less than the statutory minimum;
- There is a defect in the Demand that would cause substantial injustice if the Demand is not set aside; or
- There is some other reason why the Demand should be set aside (ie., there is a set-off, there is a genuine dispute about whether the debt is owed, or another reason).
If a Statutory Demand is subject to a genuine dispute as to the debt claimed, a Court may set aside the Statutory Demand if it is satisfied that the dispute is bona fide and truly exists, and it is not spurious, hypothetical, illusory or misconceived.
Other important information/other considerations
Another issue which arises for consideration in relation to the law surrounding Statutory Demands is that relating to insolvent trading by companies and the implication for its directors. If a company is unable to pay its debts as they fall due a director or directors may be open to insolvent trading claims if it is found that the company, upon going into liquidation, has been trading for some time whilst unable to pay its debts. This could result in the Directors being personally responsible for payment of the company debts
In this case it is probably time, once a Statutory Demand is received, to consider a strategy to either pay the debts and manage the company out of trouble or enter voluntary administration or a shareholder’s voluntary liquidation.
ABKJ Lawyers can assist you if you have received a Statutory Demand. Please contact our office should you have any questions about any of the information in this article or Commercial Law in general.