Statutory Demands, an effective tool in the Litigator’s back pocket
Posted on 27 January 2023
Daniel Albert
Statutory Demands, an effective tool in the Litigator’s back pocket
What is a Statutory Demand?
When a company owes a debt over $2,000, a creditor has the option to issue a formal demand for recovery of that debt in the form of a Statutory Demand (SD). If done so correctly, the company will have 21 days to make payment or potentially face being forcibly wound up. The Requirements for making a SD are set out in s.459E of the Corporations Act 2001 (Cth) (Act). These requirements include that the demand:
- must specify the debt and its amount;
- must require complaint with the demand within 21 days after the demand is served on the company;
- must be signed by the creditor;
- must be in the prescribed form per the Act (Form 509H);
- If the debt is not a judgment debt, the demand must include an affidavit that verifies the debt is due and complies with the rules.
The SD comes into force on effective service of the demand and affidavit on the company.
TIP: An SD will be considered effectively served if it is simply posted to the registered office of the company. Hence, it is important to maintain the registered office of your company otherwise, you may be served legal documents without knowing it.
What to do if served a Statutory Demand?
If you are a company and have been effectively served a SD, you will have 21 days from service to do one of the following:
- Comply with the demand (pay the money you owe!);
- If there is a genuine dispute regarding debt, you can apply to the Court for the SD to be set aside.
However, if you fail to take either of the above actions, or negotiate a mutually agreed third option, the company will be presumed to be insolvent, which the creditor may then use as grounds to make an application for the company to be wound-up and a liquidator be appointed.
How to get a Statutory Demand Set Aside
Where there is a genuine dispute as to the existence or amount of the debt, or the company has an offsetting claim, it may apply to the Court under s. 459G of the Act, to have the SD set aside. The application must:
- be filed and effectively served within the 21 days of the SD being served;
- include an affidavit in support of the application; and
- be served on the person who served the SD.
If it can be shown that the genuine dispute or offsetting claim reduces the debt below the statutory minimum (of $2,000), on application, the Court must set the SD aside.
Other reasons for a SD to be set aside include where there is a defect in the SD causing substantial injustice in the event the SD is not set aside. In this case, the defect must be substantial; such as a gross overstatement of the amount owed, or a failure by the creditor to properly provide enough information to identify what the debt relates to. Otherwise, the Court may consider the defect insufficient for the SD to be set aside.
Key takeaway
SD are complex and technical legal documents which need to be prepared with great care. If you receive one, it is extremely important you speak to a legal professional right away, as time is not on your side. Failure to comply with the strict timeframes can have significant consequences for your company.
How can Omnia Legal Assist with your commercial LAw Matter?
If you have served a SD, are considering serving a SD or have been served a SD,do not hesitate to call our office and speak with our commercial litigation team. You can schedule a complimentary consultation by calling us on (07) 5415 0248 or emailing us at info@omnialegal.com.au
This article provides general information on legal topics for educational purposes only, and should not be considered legal advice or recommendations. While we have taken care to ensure accuracy, Omnia Legal is not responsible for any errors, and makes no guarantees about the accuracy or completeness of the information. Links to third-party websites do not constitute an endorsement, and we are not liable for any damages that may result from using inaccurate or incomplete information. It's always best to seek legal advice for specific situations.