What is a Statutory Demand? – by Wayne Davis, Lawyer.
A creditor’s statutory demand is a written demand for payment from a debtor company allowable under section 459E of the Corporations Act 2001 (CTH).
To be eligible to issue a creditor’s statutory demand:
- The debtor must be a company;
- The debtor company must owe a debt of $2,000.00 or more to a creditor;
- The debtor company is unable to pay its debts, as and when they become due and payable; and
- There must be no genuine dispute between the debtor and the creditor about the existence or amount of the debt.
If a creditor satisfies the above, then it can serve a creditor’s statutory demand on the company.
Once served, the debtor company must comply with the demand, or apply to the Court to set the demand aside.
Failure to do so will raise the legal presumption that the company is insolvent, assisting the creditor to apply to the Court for an order winding the debtor company up in insolvency.
How to Comply with a Statutory Demand
Once served with a statutory demand the company must do one of the following within 21 days:
- Pay the amount of the demand; or
- Secure or compound for the debt to the creditor’s reasonable satisfaction.
To pay the debt is simply that, pay the amount demanded by the creditor.
To secure for the debt means to offer some security for the debt, a registered mortgage for example.
To compound for the debt means to accept an arrangement for payment of the debt amount or another amount, a repayment plan for example.
The debtor can also apply to the State Supreme Court or the Federal Court for an order setting the statutory demand aside.
How to Set the Demand Aside
The debtor company can apply to the Court to set the demand aside on the following grounds:
- There is a genuine dispute about the existence or amount of the debt;
- The debtor has an offsetting claim;
- There is a defect in the demand causing substantial injustice; or
- Some other reason.
Failure to comply with the statutory demand or set it aside, strictly within 21 days, will raise the legal presumption that the debtor company is insolvent.
The debtor company must deal with a statutory demand immediately, as the consequences can be disastrous, for the company and for the directors.