It is a general principle that when someone is owed money by a Company, they may take action and commence legal proceedings in order to recover that money from the Debtor. A Statutory Demand is a legal debt recovery process used by a Creditor to whom a Company Debtor owes money to. Alternatively, if a Creditor believes that the Company Debtor is insolvent, they may decide to issue a Statutory Demand in order to seek to have the Debtor Company wound up and seek debt payment.
(a) must relate to a debt or debts that are due and payable and total at least $4,000;
(b) must specify the debt and its amount;
(c) must be in writing, in accordance with the prescribed form, which is Form 509H;
(d) must require compliance with the demand within the statutory period (currently 21 days) after the demand is served on the company;
(e) must be signed by or on behalf of the creditor; and
(f) if relying on a debt that is not a judgment debt, the demand must be accompanied by an affidavit that verifies the debt is due and payable by the company and complies with the rules (Corporations Form 7 – Affidavit accompanying Statutory Demand). The affidavit verifying the Statutory Demand must not pre-date the Statutory Demand.
Failing to adequately respond to a Statutory Demand has far reaching consequences. The effect of not responding to a Statutory Demand (by either complying with the demand or applying to the Court under s459G of the Act for an order that the demand be set aside) is that the Debtor Company will be presumed to be insolvent. This presumption of insolvency may be relied upon by the Creditor to have the Debtor Company wound up and placed into liquidation.
It is possible for a Company Debtor to make an application to set aside a Statutory Demand, however, there are limited circumstances in which an application may be successful. If a Debtor Company has a genuine belief one of the following apply to their circumstances, they may have grounds to make a successful application to the Supreme Court to set aside the Statutory Demand:
(a) there is a genuine dispute as to the debt (s459H(1)(a));
(b) the company has an offsetting claim (s459H(1)(b));
(c) there is a defect in the demand that will cause substantial injustice unless the demand is set aside (s459J(1)(a); or
(d) for some other reason (s459J(1)(b)).
If the Debtor Company makes an application to set aside a Statutory Demand, the time for compliance will automatically be extended pending the determination of the Application by the Court. If the Court makes an Order to set aside the Statutory Demand, it will have no force or effect and the presumption of insolvency will not be presumed against the Debtor Company.
In the event the Debtor Company is unsuccessful in their application to the Court to have the Statutory Demand set aside, the time for compliance with the Order will extend until 7 days after the date of the dismissal by the Court, unless the Court specifies another period.
Service of a Statutory Demand is made by serving the Statutory Demand and accompanying Affidavit (if applicable) on the Debtor Company. Service is generally affected in accordance with s109X of the Act which provides that a document may be served on a Company by:
If the documents are served by prepaid post at the registered office, contrary to any evidence stating otherwise, the documents will be presumed to have been served on the Company on the seventh working day after posting pursuant to s160 of the Evidence Act 1995 (Cth).
It is therefore crucial to ensure that Company details, including the registered office address, are up-to-date with the Australian Securities and Investments Commission (ASIC).
A Statutory Demand can have dire impacts on a Company if appropriate action isn’t taken within the statutory period. The Courts have interpreted the twenty-one (21) day time limit very strictly and it is vital that you take action immediately so you do not get caught out.
It is vital to ensure that any Company details, including the registered address, are updated to ensure that the Company receives all mail addressed to it in order to take action in time.
Making an application to set aside the Statutory Demand will prevent a Company from being presumed to be insolvent, which will restrict the Creditor from relying on that presumption of insolvency to take steps to have the Company wound up.
Nicolas Zervos, Principal – nicz@zervoslawyers.com.au
A Suite 405, Level 4, 9 – 11 Claremont Street, South Yarra, Vic, Australia 3141
T + 61 3 9865 8900 F + 61 3 9865 8999
