What is a Statutory Demand and why it is so important to Respond to one?

What is a Statutory Demand?

A statutory demand is a document/ letter that a creditor can issue to a debtor company also known as the "Borrower" to pay its debt within 21 days.

It’s a written request for their debt to be paid that’s structured in accordance with Section 459E of The Corporations Act 2001 (Corporations Act).

If the Debtor fails to pay the debt or come to a suitable arrangement or make an application to set it aside within that time period then the company is presumed to be insolvent "unable to pay its debt"

If you are unable to pay your debts or you don't respond to a Statutory Demand within the time frame then the creditor can commence proceedings to close the debtor company.

These proceedings will be issues in the Federal Court or State Supreme Court.

When can you issue a Statutory Demand?

A statutory demand can only be issued when a debt is over AUD $2000 and is due and payable.

The Debtor must put a dollar value on what is being demanded from them and if there are more then one debt then you don't need to issue multiple statutory demands. You can issue just one demand that clearly specifies the total debt owed to you and the breakdown of the debts.

How to identify a statutory demand?

1. Is it on the correct form. They must use the form 509H, this is the only approved document on which a statutory demand can be served.

2. The min debt amount must be $2000AUD and can be including interest owing at the date it is served.

3. What kind of Debt is indicated on the document?

Statutory Demand letters cannot be issued for debt due later then the date of the demand, and must not include prospective liabilities and liquidated damages.

4. Was it Served correctly?

They must served it via postage or delivered to the company's registered address in accordance with the ASIC database. It can also be delivered personally to a director of the company.

5.A statutory demand must be in writing and must also be signed by or on behalf of the creditor.

6. Is the Debtor's company name and its registered office stated correctly.

7. Does the demand specify a place in Australia where the debt can be paid? This is generally the creditor's or solicitors office.

8. Is the statutory demand supported with either a judgement of the court or an affidavit. If there is no judgment and an affidavit does not accompany it, then the statutory demand will be set aside.

If a Statutory Demand letter fails to meet the above criteria then you might be able to relax a little. However you should seek legal advice or talk to your accountant before acting.

If you have been served with a statutory demand, you will need to deal with it right away .,

I have been served! Now what do i do next?

1. Do NOT ignore the demand. If you fail to pay or respond within 21 days to this demand your company will be presumed insolvent . The creditor can apply to close your company if the demand is not paid.

2. The best thing to do is pay the demand right away. The matter will be solved immediately as soon as payment is made.

3. Go to Court.

If the demand is defective in some way, the court will consider this if the defect will cause you substantial injustice.
If there is a legitimate disagreement about an aspect of the debt. If your dispute is deemed valid by the court, the demand will be set aside and the creditor may be required to pay a costs order.
If you have a claim against the creditor that could offset the debt in part or in whole.
other reasons are under Section 459J(1)(b) of the Corporations Act. This tends to be a scenario in which the creditor is trying to abuse the statutory demand process, but there are other genuine reasons for a demand to be set aside.

4. Negotiate. You may be able to negotiate with the creditor to allow you to pay the debt under more suitable conditions such as in split payments or an extension.

If you need help identifying whether or not the demand is legitimate or whether or not your have grounds to set it aside, or need help negotiating or just want some general advice.

Call Buildersbooks on 02 9411 5070 or Dolman Bateman on 02 9411 5422 and we can help you sort out your finances.