Statutory Demand

Leading up to a winding up
Posted on 19 July 2019

A statutory demand is a formal demand from a creditor to a debtor company demanding payment of a debt that is due and payable. Failure to act on a statutory demand can lead to disastrous consequences for a company. If a company does not respond appropriately to a statutory demand, the company can potentially be wound up, liquidated and deregistered.

Complying with a Statutory Demand

Once a statutory demand is served on a debtor company, the debtor company has 21 days to either comply with the statutory demand or apply to have it set aside. The debtor company can comply with the statutory demand by:

1. Paying the debt amount; or

2. Coming to an agreement with the creditor to arrange for payment of the debt.

Applying to Set Aside a Statutory Demand

If the debtor company disputes the statutory demand or the debt itself, it can apply to the Court to have the statutory demand set aside. The application must still be made within 21 days of being served with the statutory demand.

A statutory demand must meet certain requirements. These include that:

a. It must be written and in the prescribed form;

b. It must be accompanied by an affidavit verifying the debt, unless it is based on a court order for the debt;

c. It must require the company to pay the debt or come to an agreement with the creditor about the debt within 21 days of being   served with the statutory demand;

d. It must be signed by or on behalf of the creditor;

e. The specific amount of debt must be stated; and

f. The debt, or combined debts, must be at least $2,000.

If it does not meet those requirements, there may be grounds to set aside the statutory demand if the failure to meet the requirements causes substantial injustice to the debtor company.

If the debtor company is successful in setting aside the statutory demand, the Court may order that the creditor who served the statutory demand to pay the debtor company’s legal costs.

Failure to Comply or Apply to Set Aside

If the debtor company does not comply with the statutory demand or apply to have it set aside within 21 days of being served, the debtor company will be presumed to be insolvent. The creditor can rely on that presumption in its application to have the company wound up in insolvency.

Most applications by creditors to wind up a company rely on a company’s failure to comply with a statutory demand. If you have been served with a statutory demand, do not delay! If you need advice or assistance dealing with a statutory demand or winding up proceedings, contact us now on (02) 9299 9931.

This blog is for general information purposes only and is not intended to be legal advice. Every case has its own unique circumstances which may result in different outcomes. If you are unsure about your situation, we suggest you seek professional legal advice.