Receiving a statutory demand can be alarming, especially if you are unsure of your legal obligations or options. A statutory demand is a formal notice issued by a creditor under the Corporations Act 2001 (Cth) to demand payment of a debt from a company. Understanding your rights and obligations is crucial to navigating this situation effectively.
What Is a Statutory Demand?
A statutory demand is a written notice requiring a company to pay a debt exceeding $4,000 within 21 days. The demand must:
- Relate to a debt that is due and payable.
- Be accompanied by either a court judgment or an affidavit verifying the existence of the debt.
Failure to comply within 21 days may result in serious consequences, including the presumption that your company is insolvent. This can pave the way for the creditor to apply to the court to wind up your company.
Options Upon Receiving a Statutory Demand
Once you receive a statutory demand, you must act promptly. Here are your main options:
- Pay the Debt
If the debt is undisputed and your company can afford it, the simplest response is to pay the amount specified in the demand.
- Negotiate with the Creditor
Open communication with the creditor can sometimes lead to a mutually agreeable resolution, such as payment terms or withdrawing the demand.
- Apply to Set Aside the Demand
If there are grounds to challenge the demand, you can apply to the court to set it aside.
- Do Nothing (Not Recommended)
Ignoring a statutory demand can lead to a presumption of insolvency, which creditors can use to initiate winding-up proceedings.
Grounds for Challenging a Statutory Demand
There are specific circumstances under which you can challenge a statutory demand. The most common grounds include:
- A Genuine Dispute
If there is a genuine dispute regarding the existence or amount of the debt, the demand can be challenged. Courts interpret “genuine” as requiring a plausible and credible basis for the dispute.
- An Offsetting Claim
If your company has a genuine claim against the creditor that equals or exceeds the amount demanded, you can apply to set aside the demand.
- Defects in the Demand
Defects in the statutory demand, such as errors in the debtor’s or creditor’s details, may be grounds to set it aside. However, the court will only grant this if the defect causes substantial injustice.
- Other Grounds
For example, if the debt is not due and payable, or if the demand has not been served properly.
How to Apply to Set Aside a Statutory Demand
The process to set aside a statutory demand involves the following steps:
- Prepare and File the Application
You must file an application with the court within 21 days of receiving the statutory demand. This time frame is strict and cannot be extended. The application must outline the grounds for setting aside the demand and include a supporting affidavit with evidence.
- Serve the Application
You must serve a copy of the application and affidavit on the creditor promptly after filing.
- Attend the Court Hearing
At the hearing, the court will consider the evidence and decide whether to set aside the demand. If the application is successful, the statutory demand will no longer be valid. If it is not, you will need to comply with the demand or risk further legal action.
Key Considerations
- Timeliness Is Critical
The 21-day window to respond is inflexible. If you miss the deadline, your company will be presumed insolvent and the creditor may initiate winding-up proceedings.
- Seek Legal Advice Early
Engaging a lawyer promptly ensures that you understand your rights and assess whether you have a strong case to challenge the demand.
- Understand the Risks
Filing an application to set aside a statutory demand without valid grounds can lead to a costs order against your company.
Conclusion
Receiving a statutory demand is a serious matter that requires immediate attention. Whether you dispute the debt, need assistance negotiating with creditors or wish to apply to set aside the demand, consulting with experienced lawyers is essential. Acting swiftly and strategically can protect your company from insolvency proceedings and safeguard its financial health.
This information is general in nature and not a substitute for legal advice based on your individual circumstances. If you have received a statutory demand, contact our commercial partners Dean Jones and Charlotte Black on (03) 8621 1000 for expert legal advice tailored to your situation.
