The RMB Commercial Law Division explains the Statutory Demand process in Australia.
A statutory demand is a powerful debt recovery mechanism available to creditors under the Corporations Act 2001. It is commonly used where a company owes a clear, undisputed debt and the creditor seeks to pressure payment without commencing full court proceedings.
What is a statutory demand?
It is a formal written demand requiring a company to pay a debt of at least $4000 within 21 days. The demand must comply strictly with the legislative requirements, including being in the prescribed form and, if the debt is not a judgment (court-ordered) debt, supported by a verifying affidavit.
What happens after service?
Once served, the company has 21 days to either: pay the debt in full; secure the debt to the creditor’s reasonable satisfaction; or apply to the Court to have the demand set aside. Compliance with this timeframe is critical. If the company fails to take action within the 21-day period, it is presumed to be insolvent. This presumption can then be relied upon by the creditor to commence winding up proceedings.
Setting aside a statutory demand:
A company may apply to set aside a statutory demand under section 459G of the Act. Common grounds include: a genuine dispute about the existence or amount of the debt; an offsetting claim; or a defect in the demand causing substantial injustice. The Courts have consistently emphasised that the threshold for establishing a “genuine dispute” is relatively low. However, the dispute must be bona fide and supported by evidence.
Winding up proceedings:
If the demand is not complied with and is not set aside, the creditor may apply to wind up the company in insolvency. The statutory demand then becomes key evidence supporting the presumption of insolvency.
Key risks and considerations:
For creditors, a statutory demand can be a cost-effective and strategic tool, but it must be prepared with precision. Errors in the demand or supporting affidavit can result in it being set aside, often with an adverse costs order.
For companies, ignoring a statutory demand can have serious consequences, including liquidation. Prompt legal advice is essential to assess whether there are grounds to challenge the demand or whether commercial resolution is preferable.
The statutory demand regime is a strict and technical process that can have significant consequences for both creditors and companies so careful attention to the legislative requirements and timeframes is essential to protect your position.
RMB Lawyers can assist our clients with all Statutory Demand requirements. Your first step should be to contact our office to arrange a consultation. You can contact us by by phone or our 'Ask a Question' tool on our website.