What is a statutory demand, and how is it served?
A statutory demand is a demand for the payment of an undisputed debt, exceeding $2,000.00 that is payable by a company.
It is a simple matter to serve a statutory demand as you just need to serve it by normal post to the registered office of the company….which makes it quick and easy to serve.
A statutory demand “commences” proceedings…yet no filing fee is required which makes it cost effective to start the process.
What does the company need to do when it has been served with a statutory demand?
Once served with a statutory demand, the debtor company has 21 days to either pay the demand in full, or to challenge the validity of the statutory demand by filing an application (and supporting affidavit) in court.
This is done pursuant to Section 459G of the Corporations Act 2001 (Cth), the 21 day period is strict and it is extremely hard to extend time.
Allow an extra 4 days to allow for postal service, if the company can prove it did not receive the posted demand until 4 days after it was posted.
Under what circumstances can a statutory demand be challenged?
The Corporations Act 2001 (Cth) provides that a company may apply to set aside a statutory demand if:
- there is a genuine dispute about the existence or amount of the debt.
- your company has a claim which offsets the debt.
- there is a technical defect in the form of the demand which will cause substantial injustice unless the statutory demand is set aside.
- there is some other reason which justifies it being set aside.
What should I do if my company is served?
You should seek legal advice immediately in relation to challenging the statutory demand because:
1. you need to file and serve all evidence of the dispute within 21 days and it is extremely hard to get any extra evidence in after the 21 days has passed.
2. If the demands is not set aside, the company is presumed insolvent and ANY creditor can rely on that to seek that a liquidator be appointed to take over the company.
3. You have a limited window of opportunity to secure advice on important issues like:
a. asset protection.
b. Alternative options such as administration.
c. Your exposure as a director for insolvent trading etcetera.
d. How to have the demand set aside.
e. The various complex issues associated with insolvency law.
What happens when a statutory demand is set aside?
If your company files an application in court in accordance with Section 459G of the Corporations Act 2001 (Cth) and is successful in obtaining a court order to have the demand set aside:
- the statutory demand will have no legal effect; and
- in most cases, the court will order that the relevant creditor pay your company’s legal costs of the application.
What happens when a statutory demand is NOT set aside?
If it is not set aside, then:
1. the company has 7 days to pay the full amount of the demand, or it is presumed insolvent and ANY creditor can rely on that to seek that a liquidator be appointed to take over the company.
2. Costs will usually be Ordered against the company.
3. You can still take steps to prevent liquidation – for example by proving solvency, or by appointing an administrator.
Contact Irish Bentley Lawyers
If you have been served with a statutory demand, the you need to seek legal advice from an experienced insolvency lawyer ASAP.
We offer an initial $330 fixed price advice session where we run through the issues, the options and the pros, cons and costs associated with each option – just call us on +617 3229 4060 to arrange a time.
Most advice sessions are handled by our Principal Zeke Bentley who holds specialist accreditations in insolvency law, and who has acted in insolvency matters since 1997.
Irish Bentley Lawyers have 20 years’ of experience in this area and are listed on the ARITA website as having the requisite specialisations to advise and act in insolvency matters.
We have also won Awards for our insolvency work, and have an in-depth understanding of the issues that you may be facing.