Statutory Demands

Statutory Demands

Does a company owe you money?

If a company owes you money, you can recover your debt by issuing the company with a creditor’s statutory demand.

To be eligible to issue a statutory demand, the debt must be equal to or greater than $4,000. You cannot serve an individual with a creditor’s statutory demand.

Additionally, the debt must be due and payable, and there must be no dispute as to the existence of the debt or the amount owed. The debt is not due and payable if, for example, the company has 30 days to arrange payment and only 21 days have passed.

What is a Statutory Demand?

A statutory demand is issued by a creditor to a company, for a debt or judgment debt that is owed. A statutory demand puts the company on notice that they owe you a debt and must pay it.

If served with a statutory demand, a company can:

  1. pay the debt in full within 21 days;
  2. negotiate a compromise; or
  3. make an application to set aside the statutory demand.

Consequences of a Statutory Demand

If a company does not respond to the statutory demand within 21 days, the company is presumed to be insolvent, meaning that the company is not able to pay its debts as and when they fall due. You may then be eligible to bring an application to wind up the company.

If a company is wound up, it will be placed into liquidation and the directors of the company will lose control of the company.

A liquidator will be appointed in place of the company directors, and will investigate the company, distribute company assets, and deregister the company.

Setting aside a Statutory Demand

If you have been served with a statutory demand, you can prevent the company from being wound up by making an application to set aside a statutory demand.

An application can be made to set aside a statutory demand on the following grounds:

  1. there is a genuine dispute about the existence of the debt or the amount that is owed;
  2. the company has a claim against the creditor which off-sets the statutory demand; for example, the creditor owes the company money; or
  3. there is a defect in the statutory demand, such as when the statutory demand:
    1. is not in the correct form;
    2. does not correctly identify the debtor and the creditor;
    3. is not signed by the creditor; or
    4. does not correctly identify the debt.

The court will not uphold a statutory demand that is likely to cause confusion, or where the particulars of the debt are ambiguous.

Where an application to set aside a statutory demand is successful, the court may order the creditor to pay the company’s costs of the application.

What if a Statutory Demand is Set Aside?

When a statutory demand is set aside, the creditor can no longer rely on the presumption of insolvency. However, the creditor may choose to:

  1. commence proceedings to recover the debt;
  2. negotiate a payment plan with the company; or
  3. in circumstances where the statutory demand was set aside due to a defect, re-issue the company with a compliant statutory demand.

If you are owed a debt or have received a statutory demand, please feel free to call our office to discuss your options.

 

Get in touch

If you would like further information on how the new ESS regime can benefit your company or to discuss whether an ESS is suitable, get in contact via our contact us page.