- When do I use a Statutory Demand?
The statutory demand is a powerful tool both commercially and litigiously. It can be used where:
- The debtor is a company.
- The debt is greater than $4,000.00; and
- There is no genuine dispute over the debt.
Some common examples of debt utilized in Statutory Demands are:
- Judgment debts;
- Liquidated damages;
- Defaulted loans; and
- Undisputed invoices.
The Statutory Demand is extremely effective in producing timely, cost-effective recovery from difficult debtors.
There is no filing fee for a Statutory Demand, and we pride ourselves on drafting and serving Statutory Demands within 24 hours of receiving instructions.
Service of a Statutory Demand is affected by normal post on the registered office of the debtor company, and a result is usually achieved within one month.
The Statutory Demand is a form of debt recovery that is procedurally technical and must be settled by experienced solicitors to be effective.
This is in stark contrast to the normal Court process adopted by most law firms where the litigation runs for months and years, huge non-recoverable costs are often incurred, and the debtor can frustrate the creditor with delaying tactics.
- What is the process?
- Serve the Statutory Demand and wait 21 days.
Essentially, the Statutory Demand involves a creditor demanding that the debtor pay an outstanding debt within 21 days.
If the debtor does not pay the debt (or bring a Court Application – discussed below) within 21 days of service, then the debtor company is deemed to be insolvent and anyone who is owed money can apply to have the company placed into liquidation. This leverage is extremely effective and usually produces the desired outcome.
Service is easy and is effected by normal post on the registered office of the debtor company.
- Make a final demand to pay the debt (plus all legals) to avoid liquidation.
If the 21 days passes without the Statutory Demand being paid (or set aside), then the debtor company will be deemed insolvent, and you are entitled to apply to Court to have the Company liquidated. Even the most recalcitrant debtors pay once they realize this.
- Apply to Court seeking that the debtor Company be wound-up.
If the final demand for payment is unanswered, the creditor can then apply to the Court to have the (deemed insolvent) debtor company wound-up.
This further empowers the Creditor with the commercial leverage needed to negotiate settlement of the debt on its own terms as the debtor must either agree to the creditor’s terms, or faces a risky, difficult, and costly process of proving solvency to resist winding up.
The only way that the debtor Company can resist being wound-up is to engage specialist accountants (at a cost of $10,000.00 – $15,000.00). They need to demonstrate to the Court that the debtor company’s books are up to date etcetera and they run the risk that they will fail in which case the liquidator will be appointed.
The time-frame involved is usually very limited, and the costs of proving solvency for the debtor company are usually between $10,000.00 and $30,000.00.
Due to the above factors, the high ground for negotiation after the expiration of the 21 day period lays with the creditor company, and each stage of the process increases that leverage.
- Advertise the Company’s insolvency in the “Australian”.
If the debt is not settled prior to the advertisement, then the winding up application proceeds.
Most debts are settled before that advertisement is placed for obvious reasons. That is, the debtor will want to avoid the problems associated with dealing with the other creditors – not to mention the fact that most finance agreements state that the financier can foreclose where there is an act of insolvency.
Any arrangements between the debtor and the ATO or other bodies are usually terminated by a deemed act of insolvency.
In the overwhelming majority of cases, this leverage secures 100% recovery of the debt and all legal costs.
- Appear in Court for the winding-up
Once the deemed insolvency is advertised, the creditor can then proceed with the winding-up of the debtor company in Court.
- Cost of a winding-up proceeding.
Irish Bentley Lawyers charges a fixed-fee of $8,800.00 to handle the entire process of winding- up a debtor company. This covers the following:
- The Court filing fee (fees depending on court):
- Supreme Court:
- Individual: $1,232.90
- Corporation: $2,911.90
- District Court:
- Individual: $933.85
- Corporation: $1,838.85
- Magistrates Court:
- Filing a claim for less than $100,000.00.
- Individual: $354.85
- Corporation: $557.25
- Filing a claim for more than $100,000.00.
- Individual: $420.25
- Corporation: $695.45
- Filing a claim for less than $100,000.00.
- All advertising expenses (approximately $1,500.00).
- Drafting, filing, and serving all relevant Court Documents.
- Appearing at the application if uncontested.
- GST, ASIC fees and all outlays.
- What is the risk?
There are some minor risks involved with the Statutory Demand – the likelihood of these risks are very low, however it is important to recognize that they may occur.
- Setting aside the Statutory Demand
If the debtor has a genuine dispute and the debtor files an application with the Court within 21 days of service of the Statutory Demand, then there is a risk that a Costs Order will be made against the creditor.
The risk of this occurring is low. Further, the debtor may lose the application in which case the debt must be paid plus your costs of opposing the application. However, it must be appreciated that it may occur, and the costs that will be ordered will be between $3,000.00 and $8,000.00. In that highly unlikely event, the creditor is still entitled to pursue normal Court proceedings.
It should be noted however, that it is difficult and costly for a debtor to bring that application because:
- The debtor must have all their material prepared to Court within 21 days; and
- The law in this area is very strict on timeframes.
- This means that you know very quickly where the debtor stands, as the debtor who wishes to frustrate you will also need to quickly decide whether to settle the matter, or to pay the Court filing fee (approx. $3,000.00) and engage solicitors (involving a cost of several thousand dollars).
- This forces the debtor to seriously consider whether it is more commercial to pay the debt or to frustrate the creditor. This often brings the debtor to the negotiating table with a commercial approach.
This is one of the advantages of the Statutory Demand – for the debtor to resist paying a genuine debt, they are the ones that have to spend serious money on lawyers first.
In normal Court proceedings, it is the creditor that is paying the filing fees, and spending money getting the Claim to Court standard. This takes time and money, and locks the debtor into potentially protracted litigation where there are limited imperatives to settle the matter.
With a Statutory Demand, the timeframe is 21 days, and it is the debtor that has to invest the first set of costs into the matter.
- Disproving the deemed insolvency
The moment a debtor company fails to address the Statutory Demand within the strict timeframe of 21 days, it will be deemed insolvent.
While a debtor company may attempt to disprove the presumption of insolvency in a winding- up proceeding, the risk of this happening is highly unlikely as:
- It will cost the debtor between $15,000.00 – $30,000.00 to disprove the presumption of insolvency.
- Even if the debtor can prove solvency, the debtor will still be liable to pay the creditor’s legal fees associated with the application due to the presumption of insolvency.
- If the debtor cannot prove solvency, then the Company will be placed into the hands of the
If the Company proves solvency, then they will probably be ordered to pay your costs.
- If the debtor company is wound-up by someone else
Another minor risk to be considered is that if the debtor company is wound-up by another creditor, then the appointed liquidator may attempt to reverse a payment made prior to that winding-up on basis that it was a preferential payment. However, the likelihood of this occurring is low, and it is obviously preferable to have the payment than to not have it.
- if the company is wound-up and has limited assets then your costs of having the liquidator appointed will be paid on a priority basis from funds collected by the liquidator.
- Our experience
Where there is no genuine dispute, it is our experience that the Statutory Demand process is extremely effective and usually results in the recovery of close to 100% of the debt with the complete recovery of all legal expenses.
While the Statutory Demand process has some risks, the risk is low and it is the quickest and most cost-effective means of complete recover in an overwhelming majority of cases.
If you have any queries or wish to discuss the process of Statutory Demands further, please do not hesitate to contact our office on (07) 3229 4060.
- Supreme Court: