When a company receives statutory demands, they are more than just a warning. It is a formal, time-sensitive legal notice that can result in your company being wound up if not addressed correctly and promptly. In this article, we explain what a statutory demand is, why it matters, and what you should do when receiving one.
What is a statutory demand?
A statutory demand is a formal demand issued by a creditor under section 459E of the Corporations Act 2001 (ACT), requiring a company to pay a debt of at least $4,000 within 21 days. It is not a court process, but it is a prerequisite step to commencing winding-up proceedings against a company.
To be valid, the demand must:
- be in writing and follow the prescribed form (Form 509H);
- specify the debt owed;
- be accompanied by a supporting affidavit (unless based on a judgement debt); and
- be served at the company’s registered office.
Why are statutory demands so serious?
When companies do no not comply with a statutory demand within 21 days, by either paying the debt or successfully setting it aside, the company is presumed to be insolvent. This presumption allows the creditor to apply to the court for the company to be wound up in insolvency, resulting in terminal consequences for the business.
What are your options if you receive one?
Pay the debt in full
If the debt is undisputed and funds are available, the simplest option is to pay the amount demanded.
Negotiate with the creditor
You may attempt to negotiate payment terms or settlement. However, this does not stop the clock; if no formal agreement is reached and the 21-day period expires, the creditor may still file a winding-up application.
Apply to Set Aside the Demand
If your business wishes to dispute the debt or believes a defect is prevalent within the demand, it must file an application in a Court to have the demand set aside under section 459G of the Act. This must be done within 21 days of service, and crucially, both the application and supporting affidavit must be filed and served on the creditor within that period.
Grounds to set aside a statutory demand include:
- a genuine dispute about the existence or amount of the debt;
- an offsetting claim by the company;
- a defect in the demand causing substantial injustice; or
- some other reason under section 459J that the court considers sufficient.
What happens if you do nothing?
If you fail to respond within 21 days, the creditor is entitled, for 6 months, to rely on the statutory presumption of insolvency and may commence proceedings to wind up your company.
Get legal advice immediately
Statutory demands are deceptively simple but legally powerful, with strict timeframes to comply with. The consequences of non-compliance with a statutory demand can be catastrophic, emphasizing the importance of seeking legal advice without delay.
At Rostron Carlyle Lawyers, our experienced insolvency and litigation team regularly advises directors, creditors, and insolvency practitioners on statutory demand disputes. We can help you assess the validity of the demand, identify any grounds to have the demand set aside, and ultimately take the right steps to protect your business.
Call us today on 07 3009 8444 or visit www.rclaw.com.au to arrange a confidential consultation.
The blog published by Rostron Carlyle is intended as general information only and is not legal advice on any subject matter. By viewing the blog posts, the reader understands there is no solicitor-client relationship between the reader and the blog published. The blog should not be used as a substitute for legal advice from a legal practitioner, and readers are urged to consult Rostron Carlyle on any legal queries concerning a specific situation.
