For the purpose of applying for winding-up orders, issuing a statutory demand is currently the most common first step in establishing that a company is insolvent. Where a company owes a creditor $2,000 or more (the current statutory minimum), the creditor may serve a statutory demand for the payment of the debt.

Within 21 days of being served with a statutory demand, the company must:

1.       Pay the amount demanded;

2.       Negotiate with the creditor to pay an amount to settle the debt; or

3.       Apply to the Court to set aside the statutory demand.

If the company does not do any of the above within the 21 day timeframe, it will automatically be presumed to be insolvent. The creditor will then be able to apply to the Court to have the company wound-up, and the company will have to decide whether to go through the very expensive, difficult and time consuming process of attempting to rebut the presumption of insolvency.

As was seen in the recent case of Dual Homes Victoria Pty Ltd & Ord v Moores Legal Pty Ltd & Anor [2016] VSC 86, the procedure concerning statutory demands can be complex and requires strict compliance due to the consequences of ignoring deadlines. In this case, the solicitor was found negligent for failing to take instructions from his client and failing to provide the company with appropriate legal advice. The Supreme Court of Victoria found that this negligence ultimately resulted in the client company being wound-up.

Due to the short time limits, it is essential for companies to seek legal advice as soon as possible after being served with a statutory demand.

For further information, please contact Rachel Clutterbuck, Solicitor on 07 5444 4750 or rclutterbuck@millersockhilllawyers.com.au. 

Located in Maroochydore on the Sunshine Coast, Miller Sockhill Lawyers regularly advise clients on litigation matters.