On 1 July 2021, amendments were introduced to increase the minimum threshold amount for the issue of a Statutory Demand to $4,000.00 and, therefore, any Statutory Demands issued on or after 1 July 2021 will need to comply with the new threshold limit.
A Statutory Demand is a formal demand which can be used by a creditor to obtain payment of debts owed by a company. If a company fails to pay the debt the subject of a Statutory Demand within the prescribed period, the company will be deemed to be insolvent. The prescribed period to pay the debt, or notify the creditor of a dispute, is 21 days. A failure to do one of these things results in the creditor having the right to apply to the Supreme Court or the Federal Court to have the debtor company wound up in insolvency, with a Liquidator appointed who will then take control of the debtor company.
Procedure for issuing and serving a Statutory Demand
Pursuant to section 459E of the Corporations Act, a Statutory Demand can only be issued where the debt(s) claimed as owing by the company are over the statutory minimum threshold, which is now $4,000.00 (previously this amount was $2,000.00) and where there is no dispute as to the debt owed. Additional requirements under the Corporations Act for issuing a Statutory Demand are as follows:
- The Statutory Demand must specify the amount of the debt owed. If the amount relates to more than one debt, it must specify the total amount of the debts claimed;
- The Statutory Demand must be in writing and comply with the prescribed form;
- The Statutory Demand must require compliance within 21 days of service of the demand, such service to be made in accordance with the requirements under the Corporations Act.
- The Statutory Demand must be signed by the creditor or on behalf of the creditor; and
- The Statutory Demand must be accompanied by an Affidavit verifying the debt, unless the debt is a debt the subject of a court order.
Relying on a Statutory Demand
Strict compliance with the requirements of the Corporations Act, including the form of the Statutory Demand, is required in order for it to be valid. In circumstances where one of the requirements has not been followed, the Statutory Demand may be characterised as invalid and the debtor company may avoid compliance. If winding up proceedings are issued against the company based on a defective Statutory Demand, the Court may dismiss the winding up application, thereby rendering the Statutory Demand process invalid. This can be a costly process for a creditor, who may also have an adverse costs order awarded against it where the debtor company successfully opposes the winding up application on the basis that the Statutory Demand was defective.
As such, it is essential to ensure that a Statutory Demand strictly complies with the rules set down under the Corporations Act.
The team at Wisewould Mahony have extensive experience and knowledge in acting for both creditors and debtor companies with respect to:
- Issuing Statutory Demands that they are compliant with the relevant Court rules and the Corporations Act;
- Opposing winding up applications on the basis of a defective Statutory Demand;
- Acting for a creditor where a debtor company disputes the debt the subject of a Statutory Demand; and
- Issuing winding up applications in circumstances where the debtor company has failed to comply with a Statutory Demand.