You Have 21 Days To Respond To A Statutory Demand

You Need To Act Fast. Ignoring a Statutory Demand has consequences.

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The Statutory Demand

A Statutory Demand issued by the Court allows just 21 days to pay the debt. If you don’t pay or contest the claim, your Company will be deemed to be insolvent.

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What can happen if you ignore a Statutory Demand?

  • If you ignore the Demand, at the end of 21 days your company will be deemed to be insolvent
  • If that occurs, the creditor can then apply to wind up the company
  • An Official Liquidator may be appointed by the Court
  • Your control of the business will be lost
  • The Liquidator may close or sell the Company, its business or assets
  • The liquidator may claims against you including for insolvent trading
  • Your personal assets may be exposed and in jeopardy
  • Personal Guarantees may be called on and again, your personal assets may be at risk

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What should I do if I receive a statutory demand?
If you receive a Section 459 Statutory Demand, it should not be ignored.

The issuing of a Statutory Demand is not a precursor to litigation. It is the beginning of the potential winding up application of your company.

If a Statutory Demand is ignored, it could result in your company being placed into liquidation or you having to pay a disputed debt to avoid liquidation. If you want to learn more or are concerned about the correct process to follow after being served with a statutory demand, contact one of our expert team members today.

A Statutory Demand may be issued by a creditor immediately after a debt becomes due but only if the debt is not disputed. In fact, a certificate must be signed saying no genuine dispute exists in relation to the debt.

A Statutory Demand allows the debtor company 21 days from the date of the demand to:

  • Pay the debt in full; or
  • File an application in court to have the demand set aside on the basis of a genuine dispute.

If within the 21 days a defence is not filed in court — the company is deemed to be insolvent!

This could mean that in as little as 8-12 weeks of the demand being served, the court could appoint liquidators to your company.

A Statutory Demand is one of the most powerful business debt collection tools available to a creditor and is commonly used by the Australian Taxation Office, Workers compensation Insurers and trade suppliers.

Presumption of Insolvency if Demand is Unpaid
A company is consider insolvent under Section 95A of the Corporations Act if it is unable to pay its debts as and when they become due.

Under Section 459C of the Corporations Act, a company is presumed to be insolvent if there has been a failure to comply with a Statutory Demand.In other words, if a debtor company fails to respond to a Statutory Demand — the company is presumed insolvent and the creditor can easily and quickly move toward lodging a winding up application that could result in the appointment of a liquidator.

What is the procedure for issuing a Statutory Demand?
A Statutory Demand under Section 459E(2) must:

  • Specify the debt claimed
  • Indicate the nature of the debt ie. goods supplied and delivered
  • Require payment within 21 days
  • Be in writing and in the prescribed form
  • be signed by or on behalf of the creditor

Other Rules for Issuing Statutory Demands
A Statutory Demand may not include a claim for unliquidated damages however, one can subtract the amounts not yet due from the amount that is actually.

The amount owing must be more than $2,000 and,

  • Multiple creditors are not allowed to serve a single Statutory Demand on one company.
  • A creditor is not entitled to serve a Statutory Demand at the same time as proceeding against the debtor company’s directors in relation to the same alleged debt.
  • A creditor that is a company should issue the Statutory Demand under common seal
  • The demand must specify a place in Australia where the debt can be paid

If your business has been served with a Statutory Demand or you are concerned about insolvency or liquidation, contact us at The Insolvency Experts today for free advice on business bankruptcy and to discuss potential solutions.

By acting now, we may be able to help you avoid liquidation, bankruptcy and the stress involved in becoming insolvent.

How is a Statutory Demand Served?

A Statutory Demand is served by:

  • Leaving it at the registered office of the debtor company
  • Sending it by post to the registered office of the debtor company
  • Delivering a copy of the Statutory Demand personally to the director(s) who reside in Australia
  • Where a creditor becomes aware that the company no longer occupies the registered address, and the creditor is aware of the new address, they should take the demand to the new address.

If the creditor is aware the company no longer occupies the registered address but does not know where the company has moved, it is prudent to serve the demand on the company director(s).

How long does a creditor have to lodge a winding up application?
Section 459C(2) provides that the presumption of insolvency only lasts for three (3) months after the Statutory Demand is served and before the application to wind up the company is lodged.

If an application to wind up the debtor company is not lodged within that time, then the Statutory Demand cannot be relied upon and the process of issuing the demand will need to be started afresh.

Can the 21 days in which to comply with a Statutory Demand be extended?
A company is taken to have failed to comply with a Statutory 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 on the basis of a genuine dispute and the court may extend the time for compliance where the hearing of an application is sought.

If the court does not extend the time for compliance, then compliance ends 7 days after the application is finally determined.

Resisting a Statutory Demand
If a company wishes to set aside a Statutory Demand it must apply to court within the 21 days of service of the demand and it must serve the supporting affidavit on the person who made the Statutory Demand.

The supporting affidavit should state the grounds upon which the application is made rather than simply making the assertion that the debt is not due. If the affidavit is insufficient, it cannot be supplemented by a late affidavit served outside the 21 day period.

A Statutory Demand will only be set aside if:

  • The debt is subject to a genuine dispute
  • The amount owed is less than the statutory minimum
  • There is a defect in the Statutory Demand that would cause substantial injustice if not set aside
  • There is some other reason why it should be set aside
  • A Statutory Demand which has a defect can only be set aside where it causes substantial injustice. It will not be set aside if the Statutory Demand

is within the terms of the Act and the defect is only a minor irregularity or misstatement.

The Act provides for setting aside the Statutory Demand for some other reason. The fact a company is solvent is not some other reason. A demand containing grossly inflated amounts might be some other reason.

Additional Information
From a debtor’s point of view, the problem with a Statutory Demand is that once the time for compliance has expired, unless there is a valid application filed and served to set the Statutory Demand aside, there is absolutely no opportunity of contesting the Statutory Demand.

The only way of dealing with the Statutory Demand in those circumstances is to pay the debt, reserve one’s rights and sue for the money you had to pay. That can create major problems particularly if the debt claimed is in fact disputed.

A company that is otherwise be solvent can find itself having to pay a debt it believes it does not owe. This may cause a solvent company to become insolvent.

A creditor, using a Statutory Demand as a quick means of a debt recovery can likewise have the whole thing blow up in their face. All the debtor has to show to set aside the Statutory Demand is that there is a genuine dispute. The court is not interested in the merits of the dispute – just the fact that one exists and that it ought to be tried.

If however you have received a Statutory Demand, it may be time to consider the position of the company and your position as director.

Directors of companies that are insolvent, leave themselves open to potential insolvent trading claims. Consequently, the receipt of a Statutory Demand is possibly a time to think about your exit strategy from the company or how the company’s business may be saved – such as through a Voluntary Administration or a Creditors Voluntary Liquidation.

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