A statutory demand is a written demand made against a debtor company to pay its debt to the issuing creditor. Section 459E of the Corporations Act 2001 provides that a creditor may serve a company with a statutory demand for a debt (or debts) due and payable (the total of which must exceed $2,000). It allows a creditor to exercise its right to demand payment without the need to commence legal proceedings.
Once a demand is served, the debtor has strictly 21 days to either pay the demand, reach a compromise with the creditor or make an application to have the demand set aside.
It is very important to respond to this demand within the 21 day timeframe. Failure by a company to comply is presumed to be an act of insolvency and a creditor may make an application to the court for the company to be wound up. There are four key grounds for setting aside a statutory demand. The court is able to set aside a statutory demand if it is “satisfied” that:
• there is a genuine dispute between the company and the person serving the statutory demand about the existence or amount of the debt claimed.
• the company has an offsetting claim, which must exist at the date of hearing.
• a defect in the demand may cause substantial injustice unless the demand is set aside.
• there is some other reason why the demand should be set aside, for example failing to provide an affidavit with the demand, failure to verify that the debt is due and payable, or conduct that may be an abuse of process, unconscionable or gives rise to injustice.
A company may rely on more than one ground to set aside the demand. A company wishing to set aside a statutory demand must file and serve an originating process and an affidavit within 21 days after receiving the statutory demand. This time limit is stringent and cannot be extended. The application must state the relevant section from the Corporations Act which you are relying upon and state the relief sought.
If you have received, or believe you are in a position that may require you to send a Statutory Demand, The Quinn Group can provide you with advice, guidance or representation. Please submit an online enquiry, or call us on 1300 QUINNS (784 667).