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What is a Statutory Demand?

What is a statutory demand?

A Statutory Demand is a demand for payment of a debt owed by a company in accordance with the Corporations Act.

The effect of a valid statutory demand, is that the debtor (the company that receives the demand) must within 21 days of being served with the statutory demand, do one of 3 things:

  1. Pay the amount in the statutory demand in full; or
  2. Reach an agreement with the creditor as to payment, such as a compromised amount or paying off by installments); or 
  3. Apply to the Court (being a Supreme of Federal Court), to have the statutory demand set aside.

If a debtor does not carry out one of the above steps before the expiration of the 21 day period, this is sufficient grounds to have a company wound up on the basis that the company is insolvent.

What is the minimum amount for a Statutory Demand?

The Corporations Amendment (Statutory Minimum) Regulations 2021 increase the threshold at which a creditor can issue a statutory demand on a company from $2,000 to $4,000.

The increase will come into effect from 1 July 2021.

The new statutory minimum will apply to all statutory demands served on or after 1 July 2021.

What are the other requirements?

  • The debt is due and payable; and
  • There is no dispute regarding the debt or debts.

What to do when you receive a Statutory Demand?

A company has 21 days to either pay the outstanding debt, have the creditor withdraw the Statutory Demand or file and serve the creditor with an Application to Set Aside the Statutory Demand.

How to set aside a statutory demand

An application to set aside a Statutory Demand is made in the Supreme Court of Victoria and must be accompanied by an affidavit setting out the grounds on which you rely to have the Statutory Demand set aside (deemed invalid). A Statutory Demand must be for a definite amount of money over which there is no dispute, properly described and the debtor (person owing the money) is properly described. If there is any error in the Statutory Demand or it is ambiguous, then there are grounds to have it set aside (made null and void).

If a statutory demand is non-compliant and contains a substantial defect, it may not be an effective demand. 

Can you negotiate?

Even when the Statutory Demand is drafted correctly, it has been our experience that most Creditors are willing to negotiate the debt. Our statutory demand lawyers will work with you to negotiate and arrange to pay the debt with a satisfactory regime. It is here that our team’s extensive business experience and negotiation expertise works to obtain a satisfactory outcome to have the Statutory Demand withdrawn. 

What is insolvency?

If the Statutory Demand has not been withdrawn or an Application is not filed and served on or before the 21 days after service the company is deemed to be insolvent. A company or person is insolvent when they cannot pay their debts when they become due and payable.

Does the presumption of insolvency lapse?

The presumption of insolvency is only valid for 3 months from 21 days after the date of service, after that date the presumption lapses or becomes stale and no longer applies. Therefore a winding up application must be made prior to that date.

What is the process of a Statutory Demand?

A Statutory Demand must be issued in the prescribed form 509H. The form must be drafted carefully to ensure that it complies with Section 459E(2) of the Corporations Act

Act quickly if you receive a Statutory Demand

If you have been served with a Statutory Demand, you must act urgently you cannot wait; you have to act within 21 days of the service of the Demand

We can help you save your company and in many cases that we act upon, the Statutory Demand is withdrawn before the matter goes to court.

If you need to serve a statutory demand, or you have been served with a statutory demand, you should immediately seek assistance from one of our insolvency lawyers. If you have received a statutory demand, do not ignore it.

Call our expert Melbourne Insolvency Lawyers on 8320 2955.

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