15 November 2023
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:
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:
A valid statutory demand must meet the following requirements:
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 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.