Mastering Statutory Demands: A Comprehensive Guide - JHK Legal Commercial Lawyers

1 April 2024

Mastering Statutory Demands: A Comprehensive Guide

Written by George Sassine

Statutory Demands are an incredibly effective tool in ensuring companies that owe money to creditors cannot delay their payment through loopholes in our legal system. A Statutory Demand is a formal notice from a creditor to a debtor company demanding payment of a debt owed. It’s a crucial step in recovery of funds, outlining specific legal requirements for repayment.

There are serious consequences for failing to comply with a Statutory Demand and, as such, they are heavily scrutinized by the Courts. Our client’s must know how to ensure they are drafted properly and that they understand the “how’s and when’s” that a company or party may be entitled to have the statutory demand set aside and what cost consequences may flow at the expense of a client if the Statutory Demand was not issued properly.

By understanding the rules around their drafting and how they can be opposed, we can decide if they will suit our particular situations, especially if we are to engage clients looking to recover debts from companies.

Issuing Demands

As per s459E of the Corporations Act 2001 (Cth), a Statutory Demand may be issued by a person to whom a company owes a debt (or debts). As for an assigned debt, it is important to note that a debtor company must have been given notice of the debt to the debtor company under the applicable (reciprocal) legislation in each state and or territory. While this is important to keep in mind, there has been case law where it has been accepted that any notification of debt can be included with the Statutory Demand once issued.[1]

To be considered a valid Statutory Demand, a Statutory Demand, must comply with the following requirements:[2]

1.         the demand must be relating to a debt that is at least $4,000.00 and is due and payable to the person making the demand;

2.         Must be in writing;

3.         Must specify the total amount of debt;

4.         Must demand the debt is paid within twenty-one days or less;

5.         Must be signed on behalf of the creditor; and

6.         Must be in the correct prescribed form.

Finally, if the debt is not a judgment debt then the demand must be accompanied by an affidavit that not only verifies the debt amount that is due and payable, but it must also confirm that the demand complies with the rules provided above.[3]

If a demand is drafted in this manner, and is for a debt owing then a company may be forced to comply with the payment or enter into a suitable payment arrangement to the creditors satisfaction, if they are unable to find a valid reason for the debt to be set aside.

Additional Tips: Business owners who are concerned about cashflow should consult with their lawyers frequently to stay updated with relevant case law and precedents concerning Statutory Demands. Clear communication between the creditor and debtor and their lawyers regarding the debt can help avoid disputes and potential challenges to s Statutory Demand’s validity.

Timing is also crucial to avoid surprise and prejudice. Legal advice should be sought both in the drafting of statutory demands and in responding to any challenges or disputes raised by the debtor

Setting Aside

Generally speaking, a Statutory Demand can be set aside for four reasons. These being:

1.         A genuine dispute;

2.         There is an offsetting claim against the creditor;

3.         There is a defect in the demand which would cause substantial injustice; and

4.         Other sound reasons, especially in process.[1]

In our experience the most common of these, is that of a genuine dispute. That is, if a party who is served with a Statutory Demand is able to demonstrate that there is a “genuine dispute” regarding the debt, they may have a legal and factual basis (or bases) to have the demand set aside. Importantly, a party does not need to demonstrate that they do not owe the debt that is the subject of the Statutory Demand, but that a “genuine” dispute exists.   

Further, it should be noted that the definition of a “genuine dispute” under the Corporations Act, is undefined. This means parties will need to look at the case law to understand what might be considered a “genuine dispute” for the purpose of the Corporations Act. One such example is the case of Eyota Pty Lts and Hanave Pty Ltd,[2]  in which a “genuine dispute” was defined as “a plausible contention requiring investigation”, In this case the Court ruled that for a dispute to be considered genuine and sufficient it must require further investigation. This decision provides clarity and the importance on the standard required to set a aside a Statutory Demand at any time.

Statutory Demands serve as a crucial tool for creditors seeking prompt repayment by companies. Understanding the legal requirements and procedural nuances surrounding how they are issued and the challenges that they bring are essential in for both creditors and debtors. Compliance with these requirements ensures the validity of the demand and mitigates any risk of it being set aside. With careful consideration and diligence, creditors can leverage Statutory Demands to recover debts while debtors are able to defend their interests.

If you are a business owner, or a Director or Shareholder of a Company that has a debt owed to it, or has had Statutory Demand issued against it, please contact us as time is of the essence and we can assist given we have extensive knowledge and experience in this area of the law.

[1]  Scolaro’s Concrete Construction Pty Ltd v Schiavello Commercial Interiors (Vic) Pty Ltd (1996) FCR 319

[2]  Corporations Act 2001 (Cth) s459E.

[3] Corporations Act 2001 (Cth) s459H.

[4] Australian Beverage Distributors v The Redrock Co [2008] NSWC 3.

[5] Eyota Pty LTd v Hanave Pty Ltd (1970) 12 ACLC 669