Where a creditor is owed money by a company, pursuant to section 459E of the Corporations Act 2001 (the Act), they may issue the company with a document requiring it to pay the owed debt within 21 days, known as a statutory demand. If the debtor fails to comply with the demand, enter into an arrangement with the creditor for the debt’s payment, or make an application to set the demand aside then it will be presumed insolvent, and the creditor may commence proceedings to wind up the company.
What are the Requirements for a Valid Statutory Demand?
Pursuant to section 459E of the Act a statutory demand must:
relate to one or more debts due and payable, totalling at least $2000;
specify the debt and its amount;
be in writing and in accordance with Form 509H;
require compliance within 21 days after it has been served on the company;
be signed by or on behalf of the creditor; and
where the debt is not a judgement debt:
be accompanied by an affidavit verifying that the debt is due and payable and that conforms with the rules (see Corporations Form 7).
Pursuant to section 109X of the Act, a document may be served on a company by:
leaving it at or posting it to the company’s registered office;
delivering a copy to a director of the company who resides in Australia (or an external territory) personally;
if a liquidator of the company has been appointed, leaving it at or posting it to the liquidator’s address in the most recent notice of that address lodged by ASIC;
if an administrator of the company has been appointed, leaving it at or posting it to the administrator’s address in the most recent notice of that address lodged by ASIC; or
if a restructuring practitioner of the company has been appointed, leaving it at or posting it to the restructuring practitioner’s address in the most recent notice of that address lodged by ASIC.
I Have Received a Statutory Demand What Should I Do?
If you have received a statutory demand, you should seek legal advice immediately as you only have 21 days to:
comply with the demand;
enter into an arrangement with the creditor to satisfy the debt; or
apply to the Court under section 459G of the Act to have the demand set aside.
Legal assistance will enable you to determine first and foremost whether the demand is valid, and secondly what your best course of action is in response.
If you do not take action within the 21 day period, the company will be presumed to be insolvent and within three months of the date of non-compliance, the creditor can commence proceedings to have the company wound up.
I Want to Have the Demand Set Aside
Pursuant to section 459G of the Act, an application to set aside a statutory demand and supporting affidavit must be filed with The Court and a copy served on the creditor within 21 days after service of the demand.
This time limit is strictly applied, and no extensions can be given.
The Court may set aside a statutory demand if satisfied that:
there is a genuine dispute as to the debt;
the debtor company has an offsetting claim (being a genuine claim the company has against the creditor by way of counterclaim, set-off or cross-demand);
there is a defect in the demand that will cause substantial injustice unless the demand is set aside; or
there is some other reason why the demand should be set aside.
If you have received a statutory demand, it is imperative that you seek legal advice immediately. Contact our team at Dormer Stanhope for advice and assistance today.