Statutory Demand
Lawyers & Barristers

Demands can only be sent by creditors who have a debt which is due and payable. The Corporations Act 2001 states that the debt must be for at least $2,000. If it is for less than $2,000 a statutory demand cannot be issued.

There must also be no genuine dispute as to the existence of the debt or debts. If the debt is a judgment debt as the result of a court outcome, there is a presumption that there is no genuine dispute. Under s 509H of the Corporations Act, when sending a statutory demand it must comply with the following:

• It must be in writing.
• It must specify the amount of the debt(s).
• It must require the company to pay the total amount of debt(s) within 21 days after the demand is served on the company.
• It must be signed by or on behalf of the creditor.
• It must correctly state the debtor’s company name and its registered office.
• It must specify a place in Australia where the debt can be paid.
• It must be accompanied by a verifying affidavit if the debt(s) is not judgment debts. This affidavit must verify that the debt(s) is due and payable by the company.

If there is more than one debt claimed the statutory demand must specify the total debts claimed and at least indicate the nature of the debt relied upon – e.g. goods supplied and delivered. If this is not done it may result in the statutory demand having a defect. The statutory demand will require the company to pay the debt within 21 days of the date of the demand.

If the debtor company applies to have the statutory debt set aside and succeeds, the court is likely to order the creditor to pay the debtor company’s legal costs.

If the debtor company complies with the statutory demand, pay the monies outstanding, but then enters into liquidation within 6 months of making the payment to the creditor, the payment may be considered unfair preference and the creditor may be required to return the money.

Within 21 days of receiving a statutory demand, a company may make an application to the court to set aside the statutory demand. The creditor is entitled to assume that the debtor has received the statutory demand 4 days after the date on which they posted the demand.

This application to the court can only be made with an affidavit in support of the application and by serving a copy of the application and supporting affidavit on the demanding creditor. There are several possible grounds for setting aside a statutory demand:

• There is a genuine dispute about the existence or amount of the debt(s) to which the demand relates;
• The company has an offsetting claim against the creditor; .
• Because of a defect in the demand, (e.g. not specifying the nature of the debt in the demand), a substantial injustice will be caused unless the demand is set aside;
• There is some other reason the demand will be set aside.

Prior to applying to have the debt set aside the company may wish to engage the creditor in negotiations regarding the debt and seek legal advice as to whether they should dispute the debt in court or not.

At court the debt may be set aside entirely or varied. If it is set aside entirely the court will most often order the creditor who served the demand to pay the company’s costs. If the demand is varied the company will generally not be awarded costs.

If the debtor fails to comply with the statutory demand or fails to have the demand set aside, a presumption can be made that the debtor company is insolvent. This presumption can then be used by the creditor to apply to the court to have the debtor company wound up. The company at this point can however show that they in fact solvent to prevent them from being wound up.