A Statutory Demand is a demand on a corporation, made under Section 459E of the Corporations Act 2001 (the Act). It states that a creditor may serve a Statutory Demand to a company, for debt or debts that are due and payable by the company to the creditor.

 

A Statutory Demand must fulfil the following pre-requisites under Section 459E (2) of the Act:

It must specify the debt claimed and indicate the nature of the debt;

It must note payment to be made within 21 days;

The amount of the debt must be $2,000 or more;

It must be in writing and in the prescribed form (Form 509H); and

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

The creditor is required to serve the Statutory Demand notice, either by posting it to the registered office of the company, or by personally serving it to the director of the company. For non‑compliance of a Statutory Demand, the company can also be declared as insolvent. If a company has been served with a Statutory Demand, immediate action must be taken to avoid such adverse consequences.

 

The Statutory Demand need not necessarily be paid in the Australian currency. If the debt is in foreign currency, it can be paid as it is in. For example, in Daewoo Australia Pty Limited v Suncorp Metway Pty Limited (2000) 48 NSWLR 692, the Court accepted the payment in a foreign currency as being appropriate, even though in the prescribed form it required it to be translated into the Australian currency.

 

Pay

 

The first and foremost option for a company being served with a Statutory Demand notice is:

Pay the debt owed, in full (or come to an agreeable payment arrangement with the creditor); or

Negotiate a withdrawal of the Statutory Demand by the creditor within 21 days.

Once the claim is settled, you should obtain a written undertaking from the creditor within 21 days to withdraw the demand.

 

Dispute the Claim

 

A company can exercise other options by disputing the claim of the creditor, if it can prove either:

The statutory demand is defective in some way;

The creditor owes to the company, an amount equal to or exceeding what has been demanded; or

A genuine dispute exists about the debt claimed.

The companies need to show that either of these situations exists to ensure that they are not forced to pay the debts which are not actually due and payable.

 

Apply to Court to Set Aside

 

If the claim has been disputed by the company, the next step is to file an application to the Court to set aside. The application must be:

Made within 21 days of service of the Statutory Demand;

Accompanied by an Affidavit or Affidavits providing evidence of the dispute about the debt claimed; and

Served on the creditor.

There is no provision to extend the time, even if the issuing party agrees to extend the 21 day period. The Act does not allow for this extension of time.

 

If the company fails to make an application, to set aside the Statutory Demand or reach an agreement in relation to the repayment of the debt claimed, within the stipulated period, it will be deemed to be insolvent.

 

Settle

 

A creditor, who has served a Statutory Demand that has not been set aside or otherwise settled within the 21 day period, can make an application to wind up the company. Since the company has failed to comply with the Statutory Demand, the Court may presume that the company is insolvent. Unless the company is able to rebut the presumption of insolvency, an Order will be made by the Court to wind up the company.

 

If your company has received a Statutory Demand, act immediately and seek legal advice. The consequences of not acting are serious. Our experienced team of lawyers are able to assist you and guide you through all the steps involved. For any further queries please feel free to contact Rolf Howard, Owen Hodge Lawyers rsh@owenhodge.com.au.

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