Insolvency

  1. What do I do if my company has been served with a statutory demand?

 

The short answer is to be proactive in seeking legal advice, the long answer is as per the below.

 

  1. What is a statutory demand?

 

A statutory demand is a formal demand to collect a debt, under s459E of the Corporations Act 2001 (the Act) and is used by creditors seeking to initiate the winding up of the debtor company. The statutory demand is a means for the creditor(s) to determine whether the debtor company can pay its debt(s) as and when they fall due.

Creditors wanting to initiate a compulsory winding up in insolvency will first serve a statutory demand on the company owing the debt.

 

  1. When can a creditor serve a statutory demand on a company?

 

Pursuant to section 459E of the Act a person may serve a company with a statutory demand relating to:

  1. a single debt that the company owes to the person, that is due and payable and whose amount is at least the statutory minimum; or
  2. two or more debts that the company owes to the person, that are due and payable and whose amounts total at least the statutory minimum.

The debt or debts claimed in the statutory demand must total at least the statutory minimum (section 459E(1)), which is currently $2,000.00 as at November 2017).

 

  1. What are the requirements for a statutory demand?

 

In order to be considered valid a statutory demand must:

  1. specify the debt(s) and its amount(s);
  2. require the company to pay the amount of the debt within 21 days after the demand is served on the company;
  3. be in writing; and
  4. be in the prescribed form (found in Schedule 2 of the Corporations Regulations 2001); and
  5. be signed by or on behalf of the creditor.

 

  1. How must a statutory demand be served?

 

A statutory demand must be served upon the company by:

  1. delivering or posting the statutory demand to the company’s registered address; or
  2. personally serving it on the company director.

 

  1. What will happen if I fail to respond to a statutory demand?

 

If at the end of the period for compliance (typically 21 days) the company has not complied with the terms of the statutory demand, the presumption that the company is insolvent may arise. Subsequently the creditor may apply to the Court pursuant to section 459Q of the Act for an Order that the debtor company be wound up.

 

  1. How can I challenge a statutory demand?

 

Pursuant to section 459G of the Act a company may apply to the Court for an order setting aside a statutory demand, however, this must occur within 21 days after the statutory demand is served upon the company. An application to set aside also requires the debtor company to:

  1. file an affidavit supporting the application with the Court; and
  2. serve a copy of the application, and a copy of the supporting affidavit, on the person who served the statutory demand on the company.

A statutory demand will only be set aside if:

  1. the amount in fact owed is less than the statutory minimum (section 459H);
  2. there is a defect in the demand that would cause substantial injustice if the demand is not set aside (section 459J); and
  3. there is some other reason why the demand should be set aside (section 459J)

 

If your company has been issued with a statutory demand, or if you are seeking to issue a statutory demand upon a debtor company, you should contact Stone Group Lawyers for a free 45 minute initial consultation with one of our insolvency litigation specialists.

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