Creditor’s Statutory Demand
If you or your business are owed a debt by an Australian company that is not disputed, then there can be a relatively simple, yet effective way of obtaining payment in as little as 3 weeks.
The Corporations Act 2001 (Cth) provides for the issue of a document called a “creditor’s statutory demand” to any company that owes a debt greater than the prescribed amount (which from 01 July 2021 is $4,000*). *Note that this threshold increased from the original $2,000 (at the time this article was original published) to $20,000 as a result of the Coronavirus legislation but dropped back to the current threshold.
The process is basically that the demand is served and then you wait.
Statutory demands must be in the prescribed form, detail the debt due, be signed by or on behalf of the creditor and be properly served on the company. Where the debt is not a judgment debt, an affidavit is also required to be signed, certifying that the debt is due and payable.
The Act provides where the demand is served and not complied with within 21 days*, the company is presumed to be insolvent and is liable to be wound up. Compliance with the demand is achieved by either paying the debt due or coming to an arrangement satisfactory to the creditor in relation to payment of the debt within that 21 day period. *During the COVID-19 pandemic period, this increased to 6 months but has reverted back to 21 days from 01 January 2021.
The presumption of insolvency lasts for 3 months after the 21 day period expires. Any proceedings to wind up the company on the basis that it is insolvent must be commenced within that period.
Creditor’s statutory demands may only be set aside by the Court on certain grounds and applications to do so must be both filed with the Court and served on the creditor that issued the demand within that 21 day period. Grounds for setting aside the demands are limited and include where there is a defect in the demand, where the amount owed is less than the prescribed amount or where there is a dispute as to the existence and/or amount of the debt claimed. None of these grounds may be relied on to oppose a demand after the 21 day period.
Where the debt is disputed, the service of a creditor’s statutory demand is not the appropriate way to obtain payment however, there are other methods available.
This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your legal concerns or objectives.