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Statutory Demand vs Statement Of Claim: What’s Different?

Statutory Demand vs Statement Of Claim: What’s Different?

A statutory demand and a statement of claim are two legal options you have to recover a company debt. So what is the difference? Read our guide to find out.

18th February 2020
Reading Time: 3 minutes

Are you owed money from a company and have done everything in your power in attempt to retrieve it? It may be time to take legal action. Generally speaking, you have two options: issue a creditor’s statutory demand or file a statement of claim. So what route should you take? Read our guide to discover the difference between a statutory demand and a statement of claim.

What is a Statutory Demand?

In short, a statutory demand is a letter issued by a creditor to a company. It is governed by section 459E of the Corporations Act 2001 (Cth). Ultimately, it requires a debt to be paid by a company within 21 days. The debt must be over the statutory minimum of $2000.

Importantly, a creditor uses a statutory demand as a way of showing a debtor company is insolvent. In short, insolvency simply means a company is unable to pay its debts as they fall due. Therefore, if a creditor can prove a company is insolvent, it can be wound up. For more information, you can read our guide ‘Commencing Winding Up Proceedings: 5 Things You Need To Know‘.

The Corporations Act 2001 (Cth) sets out a number of requirements with regard to issuing a statutory demand. For instance, you will need to use a Form 509H and ensure the demand meets legal requirements. This includes that it must be in writing, signed, state the debt owed and the location in Australia where it should be paid. You can customise our Letter of Demand (1st Attempt) for free.

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What is a Statement of Claim?

On the other hand, a statement of claim is a summary of the facts to support your case. It is the first document you file in your legal proceedings. Essentially, a statement of claim is used by a creditor to assert a claim against a debtor.

To begin, you will need your lawyer to draft a statement of claim. This will then be filed with the court and served on the other party (i.e. debtor). Next, the other party must respond to your statement of claim. This must be done within a specified time period, which is usually 28 days. The other party may decide to defend the claim. Where this occurs, the matter will be heard in court to decide the case. If the other party does not respond to your statement of claim, a default judgement may be ordered.

What is the Difference?

As discussed above, there are a number of differences between a statutory demand and a statement of claim. For example, the burden of proof attached to a statutory demand is not as high as a statement of claim. Therefore, if you choose to issue a statutory demand, you should ensure there is no real genuine dispute over the debt owed. Hence, if there is genuine debate, it is likely the statutory demand will be set aside and the debtor will not have to pay the debt.

Moreover, whether you choose to issue a statutory demand or a statement of claim will depend on a number of factors. For instance, if you would like to put pressure on the debtor company, a statement of claim would be the better option. This is because it is backed by the power and pressure of court proceedings.

Another key difference is that a statement of claim can be issued by a creditor for debts under $2000. In contrast, a statutory demand can only be issued for debts over the minimum amount of $2000.

Final Thoughts

To conclude, a statutory demand and a statement of claim can be used for different purposes. They both carry significant power in the ability of a creditor to obtain debt from a debtor company. If you need assistance in drafting a letter, we recommend consulting a Business Lawyer.

Don’t know where to start? Contact us on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest lawyer marketplace.

Author
Laura Worrad

Laura is a Legal Intern at Lawpath. She is studying a Bachelor of Laws and a Bachelor of Business Administration at Macquarie University. Laura is interested in Intellectual Property Law and how technology can assist in improving access to justice.