What is a Statutory Demand For Payment and When Should You Use It?

A Statutory Demand is a creditor’s first step in the winding-up process of a company, and as a result, it is also an effective debt resolution option.  It can help focus the mind of a company that is failing to pay a debt it owes you.  If you have been making fair and reasonable efforts to have the amount paid and they’re "ghosting" you – a Statutory Demand For Payment could be an option for you.

Step 1: So, You’re Owed a Debt

You’re being persistent in following up with a debtor, and they are "ghosting you" or making promises to pay that they are not keeping. In short, they’re just not paying up for a product or service you’ve delivered. There are times when all businesses have had to chase money and most times, it can be resolved in a phone call or two, but what happens when, no matter what you do, the debtor just won’t pay up? A Statutory Demand is a formal, verified demand issued under section 459E of the Corporations Act 2001 (Cth). It can be a very effective instrument for determining whether a company is able to pay its debts as and when they fall due. It is also a powerful tool that a frustrated creditor can arm itself with.

Step 2: Does the Debt Qualify for a Statutory Demand?

If a debtor, that is, a company, owes you more than AUD$4,000, you can serve them with a Statutory Demand for payment. Or if you have a judgment over a debtor company, then you can enforce your judgment by serving a Statutory Demand. Once a Statutory Demand has been served, the debtor has 21 days to comply or attempt to get the Statutory Demand set aside.  There are a number of ways in which a Statutory Demand can be set aside, including if there is a genuine dispute in relation to the money being owed. Failure to pay the amount set out in the Statutory Demand or failure to apply to the Court to have the Demand set aside will result in the legal presumption that the debtor is insolvent. This means a Statutory Demand CANNOT be ignored by the debtor if they want to stay in business.

Step 3: Understand The Requirements For Issuing the Demand

Let’s assume you’re owed a debt by a company, and it’s more than AUD$4,000, so you want to issue a Statutory Demand. Below is a checklist of what you need to do first:

  • Speak to a lawyer;

  • Ask them to prepare a Statutory Demand.

  • A Statutory Demand must be in the prescribed form – this is vital. If this is a course of action you wish to pursue, it is critical all the t’s are crossed, and the i’s are dotted to ensure you have the best chances of success.

  • The Statutory Demand must be accompanied by a Judgement or an Affidavit. If an Affidavit needs to be attached, this must be drafted in the correct format and sworn by someone with authority.

The process that must be followed by both the creditor and the debtor is explicitly stated in the Act, which is why it’s critical a lawyer is involved in the process.

A Statutory Demand must:

  • Be in writing in the prescribed form

  • Be accompanied by a Judgement or Affidavit sworn by you, confirming that there is no genuine dispute in relation to the money that is outstanding

  • State the debtor’s company name and registered office

  • State the total amount owed

  • Specify a place in Australia where the debt can be paid

Step 4: Have the Statutory Demand Served

Once you are confident that you’ve completed the Statutory Demand in compliance with the law and that you’ve completed each step carefully – it's time to serve the demand.  This is generally best done by post or personally delivered to the registered office of the company. Once the Statutory Demand has been served, the debtor company has 21 days to comply.

Step 5: Notice Period

If all the above has been done according to the letter of the law during the 21-day notice period, generally, one of four things will happen:

  1. The debtor will repay the debt to you, and the matter will be closed

  2. The debtor will be in touch with a proposal to satisfy the debt over time

  3. The debtor will apply at the Court to have the demand set aside

  4. The debtor takes no action, at which point you could apply to the Court to have the company wound up.

How a Statutory Demand Can Be Set Aside:

A debtor can request that a Demand notice be set aside, or in layman’s terms, is not enforceable – due to the following reasons:

  1. If there is a genuine dispute between the two parties regarding the debt owed. There is little to be gained from using the Statutory Demand if there is a dispute about the existence or the amount of the debt. A Statutory Demand is not a dispute resolution process.

  2. The debtor company has an offsetting claim for money you owe them.

  3. The demand wasn’t completed to the Court’s satisfaction or served properly. A creditor wanting to serve documents on a company should serve them at the address recorded on the ASIC register. To avoid any ambiguity around whether the debtor received the Statutory Demand, it is best to have it hand-delivered and have someone at the registered office sign for them.

  4. A demand can fail because of how the documentation was prepared – this is why having a lawyer involved is crucial.

  5. Some other valid reasons – such as the amount being claimed is excessive or if the Statutory Demand is being used as an abuse of process (such as malicious intent).

If a debtor applies to have the demand set aside and is successful – you could be liable for SIGNIFICANT costs. It could also mean you have to go through the whole process again.

Keep in Mind:

  • Be confident that the company has the funds to pay you – if you suspect that they might actually be insolvent if you’re the creditor that does apply to wind the company – it can end up costing you A LOT of money (more than what you would get back via the winding-up process). So careful consideration is important if you do want to go down this path.

  • The Statutory Demand was not designed to be a debt recovery procedure but rather as the first step of a winding-up application. The most effective way of proving company insolvency is the issue of and failure to comply with a Statutory Demand.

What Next:

If you have concerns or issues with having a debt paid on time, contact us to talk through your legal options.

UncategorizedGuest User