What is a Statutory Demand?
Statutory demands can help recover debts owing to you, but there are also risks. This article outlines how to use it properly and the defences you can use.
A statutory demand is very useful when trying to recover outstanding monies still owed to you or your company. Essentially it is a document that the creditor company (the one selling goods or services), sends to the debtor company (the company or entity that has purchased). The document will demand the outstanding amount owed to be paid in full within 21 days. The demand is made under section 459E of the Corporations Act 2001 (Cth).
If the debtor company fails to take any action within the 21 days to either negotiate an agreement or pay the amount, the creditor has the freedom to start winding up the debtor company. This is because if the debtor company is not able to pay this debt, it is presumed to be insolvent. These proceedings will either take place in the Federal or Supreme Court.
Creditors can only issue a statutory demand if the amount owing is over $2,000. If there are multiple debts owing they can all be grouped together to form one total, so you don’t have to make multiple applications. To file your own application you must fill out the Form 509H.
Things to keep in mind:
- Must be in writing.
- Needs to be signed either by you or by someone on your behalf.
- Your company and office must appear. (This can be easily fulfilled with a standard company header if available).
- The total amount owed must be stated.
- A place the total amount can be paid to must also be clear. This can be your office or perhaps a solicitors office.
- To support your demand, you need either a judgement of the Court or an affidavit. (Without either or both of these things your demand will be set aside).
- If you need assistance to ensure it is legally accurate, you should consult a lawyer.
Due to the fact that these demands can be served across Australia, the creditor may have to serve on interstate. If the demand must be served interstate you will need consult the Service and Execution of Process Act 1992 (Cth).
If the debtor is able to set aside the Statutory Demand, you as the creditor could be liable to cover their application costs. While this is not a significant amount, you should be aware of this possibility. There is also a chance that the debtor company cannot repay the amount at all. To avoid a futile application, it is recommended that you first make some inquiries into the debtors assets to make sure they are able to pay.
If you are the debtor company, you will either have to pay the amount within the time frame, or come to a suitable arrangement with the creditor. This could include payment plans or a renegotiated amount. One other option is to set aside the Statutory Demand. If you fail to take any action, you risk insolvency and the creditor company can wind up your company. Below we will outline some defences for setting aside such a demand.
1. Genuine Dispute
This is the easiest and most common defence used by debtor companies. It entails you providing some evidence that there is a genuine objection to either the amount owing or the existence of owing money at all.
2. Offsetting claim against creditor
If the creditor company happens to owe you any money, this can be grounds for an offsetting claim. You as the debtor company do not need to prove that you can be successful, only that there is a genuine offsetting amount.
If the creditor company has made a significant error in filling out the Statutory Demand, you can apply for it to be set aside. Common arguments include an inconsistent amount or vague descriptions of the debts origins. Keep in mind that minor errors like spelling mistakes will not be considered a defect. You can only use this defence on the demand itself, not on any other documents.
Another common defence is the absence of or ineffective affidavit. Specifically, if the affidavit does not specify the amount owed, or not signed at the same time as the Statutory Demand. Although do note that if the company is in fact solvent, this does not amount to a good enough defence to set aside the demand.
Whether you are the creditor or debtor company in the case of outstanding monies owed, there are pros and cons for everyone. As the creditor, you may risk paying for the debtors application process. Therefore, as these proceedings are done in Court all proceedings are public records, which won’t be ideal for you if you don’t want this information floating around.
If you are the debtor, you have a few defences to rely on. However, if unsuccessful you must either pay the amount owing or risk having your company wound up. For either side, it is crucial to consult a dispute resolution lawyer first to discuss this specifically to your issue.
Taeisha is a Legal intern at Lawpath. She is a Law student at Macquarie University, previously completing her Commerce degree. She has an interest in Commercial Law.