What are Creditor’s Statutory Demands and why are they used?
A Creditor’s Statutory Demand is a form of letter of demand, issued under section 459E of the Corporations Act 2001 (Cth) to a debtor company in circumstances where there is no genuine dispute in relation to the debt owed and no offsetting claim against the amount owed. For debtors, the improper handling of a Creditor’s Statutory Demand may trigger serious legal consequences, including being deemed insolvent and the possibility of an application to wind up the company. It can also trigger consequences under various commercial and financial agreements to which the debtor is a party.
What is the Statutory Demand
Pursuant to Section 459E of the Corporations Act 2001,a creditor can serve a Creditor’s Statutory Demand on a company that owes the creditor more than $4,000. No order of a Court is required to do this.
Pursuant to the Corporations Act 2001, a Creditor’s Statutory Demand must:
relate to a debt or debts that are due and payable and total at least $4,000;
describe the debt and its precise value;
be in writing, in accordance with the prescribed form (Form 509H);
require compliance with the demand within 21 days after the demand is served on the debtor;
be signed by or on behalf of the creditor; and
be accompanied by an affidavit that verifies the debt is due and payable (unless the debt is not a judgment debt).
In the event that the debtor fails to comply with the requirements of a Creditor’s Statutory Demand and does not bring an application to the Court seeking to set it aside within 21, the debtor will be regarded as “insolvent”, entitling the creditor to initiate winding up proceedings against the debtor.
How to respond to the Statutory Demand
If a Creditor’s Statutory Demand has been served, the debtor has the following options:
Pay the debt(s) stipulated in the Creditor’s Statutory Demand within 21 days of its service;
Move quickly to endeavour to negotiate a payment arrangement with the creditor within the 21 day since its service (such as an instalment agreement); or
Within 21 days of service, apply to Court seeking an order that the Creditor’s Statutory Demand be set aside..
The Court may set aside a Creditor's Statutory Demand if it is satisfied that:
there is a genuine dispute as to the debt claimed; or
the debtor has an offsetting claim against the creditor;
there is a defect in the Creditor’s Statutory demand that will cause substantial injustice unless it is set aside; or
For some other reasons (e.g., inadequate service
Application for a Winding-Up Order
If a debtor fails to comply with a Creditor’s Statutory Demand within 21 days of it service, , the debtor will be presumed insolvent and the creditor can, within three months following its expiry, apply to the Court for an order that the debtor be wound up.
Serious consequences arising under the Corporations Act 2001 can flow for directors where a company is trading whilst insolvent so care ought be taken to ensure that a company served with a Creditor’s Statutory Demand acts on its options prudently and quickly .
Contact BlackBay Lawyers
If you would like assistance with issuing or responding to a Creditor’s Statutory Demand, or otherwise recovering a debt owed to you, please contact BlackBay Lawyers on firstname.lastname@example.org or (02) 9100 0889.