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What is a statutory demand and what you should know?

An Overview on Statutory Demand

A statutory demand is a corporate insolvency process available for creditors to show that a company is insolvent when a statutory demand has not been complied with by a debtor. However, a statutory demand is not intended or designed to be used as a debt recovery tool.

In this article, we address the frequently asked questions when a company is served with a statutory demand, including:

What is a statutory demand?

A statutory demand is a prescribed form set out in the Corporations Act 2001 (Cth) and Corporations Regulations 2001 (Cth) that may be issued by creditors for debts that are due and payable and must at least be a sum in accordance with the prescribed statutory minimum.

Generally, a statutory demand is accompanied by an affidavit that verifies that the total amount of the debt is due and payable by the company. The creditor’s affidavit generally states that the creditor believes there is no genuine dispute about the existence or amount of the debt.

Ordinarily, a statutory demand should include the following details:

  • if, it relates to a single debt – specify the debt and its amount;
  • if, it relates to two or more debts – specify the debt of the total of the amounts of debts;
  • require the company to pay the amount of the debt within 21 days of the demand being served;
  • be in writing and in a prescribed form; and
  • be signed on behalf of the creditor.

If a statutory demand is defective, then the statutory demand may be challenged or objected by the debtor for being defective.

How is a statutory demand served?

Generally, a statutory demand may be served by on a company, by:

  • leaving it at, or posting it to, its registered office;
  • delivering a copy of the document personally to a director of a company who resides in Australia.

The date a statutory demand has been served should be observed, as a company will generally have twenty-one (21) days to prepare any application to challenge or object to a statutory demand.

What do I do if I am served with a statutory demand?

If a company has been served with a statutory demand, there are several avenues available:

  • pay the debt in full;
  • negotiate with the creditor to reach a potential settlement;
  • challenge or object to the debt or statutory demand, by preparing an application to set aside the statutory demand.

However, it is recommended to obtain legal advice to assess the legal implications of the avenues that the company intends to pursue when served with a statutory demand.

How can I challenge a statutory demand?

There are grounds to challenge a statutory demand, however, the Court must be satisfied that:

  • if there is a genuine dispute about the existence of a debt that the demand relates;
  • that the company has an offsetting claim against the existence of the debt;
  • there is a defect in the demand, and substantial injustice will be caused unless the demand is set aside; or
  • there is some other reason why the demand should be set aside.

If the statutory demand is successful challenged, then ordinarily, the company may recover costs from the creditor who issued a statutory demand.

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Authored by:
Ben Franklin, Managing Partner (LIV Accredited Specialist – Property Law), &
Matthew Tran, Lawyer.

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