Some handy tips about Statutory Demands
If you are owed a debt by a company and it is at least $2,000, a useful debt recovery mechanism to consider is a creditor’s statutory demand.
Here are some ‘need to know’ facts about statutory demands:
Formalities
It is important that the statutory demand complies with the relevant formalities including being signed, dated and including the prescribed notes. Whilst it is a prescribed form under the Corporations Act 2001, you still need to include relevant details about the parties and the debt. The debt amount must be at least $2,000 (the statutory minimum amount) and it must be for a debt and not a claim for damages. This distinction is important.
A statutory demand should only be issued where there is:
- no genuine dispute in relation to the debt; and
- no offsetting claim that reduces the debt sought in the statutory demand to a sum less than $2,000.
It is sensible to have a lawyer draft the statutory demand to ensure it complies with the formalities, as it may be open to be set aside if it contains a significant defect. If your statutory demand is set aside by a Court, you may be liable to pay the debtor company’s legal costs.
Do I need to obtain judgment first?
You don’t. Unlike a bankruptcy notice, you do not require a judgment debt to issue a statutory demand. However you do require an affidavit setting out the details of the debt which must be issued with the statutory demand, where no judgment debt exists. The affidavit should be sworn on the same day the statutory demand is signed and dated. A statutory demand based upon a judgment debt requires no supporting affidavit.
How do I give the statutory demand to the company?
The statutory demand needs to be properly served on the company by leaving it at or posting it to the company’s registered office or by personal service on a director of the company. Proof of the date of service is important. An affidavit of service should be prepared shortly after service of the statutory demand.
What if the debtor company doesn’t pay?
If the debtor company does not pay the debt or enter into an arrangement with you to satisfy the debt within 21 days of the date of service of the statutory demand, the company will be deemed to be insolvent and you may bring an application to wind up the company in the Federal Court or Supreme Court. A statutory demand should not be issued upon a clearly solvent company as it is not intended to be a debt recovery tool but rather a mechanism to wind up an insolvent company.
The Federal Court provides a useful checklist to consider when bringing a winding up application – click here.
The above is not intended to be an exhaustive list of everything you need to know about statutory demands, but rather, a useful starting point. If you wish to issue a statutory demand or you are served with a statutory demand, we strongly recommend that you seek urgent legal advice.
If you require legal assistance please do not hesitate to contact McLaughlins Lawyers and speak to one of our highly-skilled lawyers today on 07 5591 5099.
Author: Matt Kollrepp
Director: Ian Kennedy
Date: 22 October 2019
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