My company has been served with a Statutory Demand, what should I do?

Written by Hanaa Merhi

What is a statutory demand?

In Australia, a statutory demand is a formal request for payment of a debt that is owed by a company. Statutory demands are issued under section 459E of the Corporations Act 2001 (Cth) (Act).

If you’ve been served with a statutory demand, you should seek legal advice immediately as strict statutory time frames apply. If a debtor company fails to comply with a statutory demand within 21 days of service, a presumption of insolvency may exist, and the Company may face the possibility of being wound up by order of the court. So, it is important to know your rights if you are served with one.

When a company is insolvent, it means the company cannot pay its debts as and when they fall due. In these instances, creditors of the debtor company can take various steps to enforce their rights. That includes serving statutory demands.

If you are served with a statutory demand, you can choose to either:

1. Pay the requested figure within the 21 days after being served;
2. Negotiate a settlement for the debt with your creditor; or
3. Set aside a statutory demand via a court application. For example, in the event of a genuine dispute about the debt claimed or where a defect may exist in the demand that would cause substantial injustice to the debtor.

If a debtor company fails to undertake any of the three actions within the statutory period, it will be presumed insolvent. The creditors can appeal to the court for the debtor company to be wound up. A liquidator will be assigned to the debtor company to begin liquidation proceedings.

When can a statutory demand be made?

A creditor can issue a statutory demand if:

• The debtor in question is a company;
• If the creditor is owed at least $4,000;
• If the debt is due and payable; and
• There is no genuine dispute about the debt.

A valid statutory demand must meet the following requirements:

1. It is in writing and uses the prescribed form, which is Form 509(H);
2. It accurately specifies the debtor company and the creditor(s);
3. It is signed by the creditor making the statutory demands or their agent;
4. The statutory demand states the name of the debtor company to which the statutory demands are made. This includes the company’s registered office address;
5. The statutory demand specifies the amount of debt owed; and
6. It must detail a location in Australia where the debt may be paid. This usually takes place at the debtor company or their legal practitioner’s office.

How is a statutory demand served?

A statutory demand may be served either personally or by post. If you are registered as a company in Australia, the statutory demand must be served to your company’s registered office address.

What happens if I don’t respond to a statutory demand?

Ignoring a statutory demand is not a recommended course of action. It is essential to address the situation promptly to minimise the potential legal and financial consequences.

If the Company fails to comply with a statutory demand within 21 days, then the Company will be presumed to be insolvent. The company or person who served the statutory demand can begin a winding up application against your company on the basis that your business is insolvent.

If you’re served with a statutory demand, it’s important to act quickly while you still have options available to you. If the 21 day time limitation for compliance with a statutory demand lapses without any of the abovementioned options being exercised, then the creditor may rely on the presumption of insolvency to commence a winding up application, to wind up the Company in insolvency.

If you are served with a statutory demand, you should seek out legal advice as soon as possible. You may be able to challenge creditors’ statutory demands if you have grounds to do so.

On what grounds can I set aside a statutory demand?

If you have been served with a statutory demand, and you believe that the debt is in genuine dispute, or that you have an offsetting claim, then you can apply to the court to set aside the statutory demand. To successfully set aside a statutory demand, you must demonstrate to the court there is a valid reason for the statutory demand to be set aside.

The most common grounds to set aside a statutory demand are:

• The debt claimed in the creditor’s statutory demand is in genuine dispute.
• You have an offsetting claim, and this claim reduces the amount of the debt claimed in the statutory demand to less than the statutory minimum.
• The statutory demand is defective.

The Company must file an application within the 21 days of being served with the statutory demand. It’s important to act quickly, as this is a serious matter that could lead to the winding up of the Company. If you’re not sure what to do, seek legal advice as soon as possible.

Can a statutory demand be withdrawn?

Yes, if there are grounds for the debtor company to set the statutory demands aside. The creditor may be informed of reasons for withdrawing the statutory demands (for example, if there is a genuine dispute), and be asked to withdraw it.

The withdrawal of statutory demands can be done either in oral or written form. However, a debtor company should always have a written copy of the withdrawal, in case they need to refer to it in the future.

Creditors may still opt to dismiss the debtor company’s request to withdraw a statutory demand. However, if the company succeeds in petitioning the court to set its statutory demand aside, the creditor may be ordered to cover the costs of setting it aside.

If your company has been served with a statutory demand, time is of the essence, and it is crucial that you obtain legal advice as soon as possible.

Please contact JHK Legal if your company has been served with a statutory demand or if your company wishes to issue a statutory demand against a debtor company. If you have any questions, please contact our office.