Mark Gustavsson Lawyers and Solicitors

I have received a statutory demand – now what? How to defend a statutory demand issued to your company

A Statutory Demand is a demand made in the prescribed form by a creditor to a company pursuant to section 459E of the Corporations Act which demands payment of a debt within 21 days. A failure to comply with a Statutory Demand, creates a rebuttable presumption of insolvency pursuant to section 459C of the Corporations Act, which then allows for a creditor to apply to wind up the company.

A Statutory Demand is a demand made in the prescribed form by a creditor to a company pursuant to section 459E of the Corporations Act which demands payment of a debt within 21 days. A failure to comply with a Statutory Demand, creates a rebuttable presumption of insolvency pursuant to section 459C of the Corporations Act, which then allows for a creditor to apply to wind up the company.

What to do if your company is served with a statutory demand

If your company is served with a statutory demand, you have 21 days from the date of deemed service (not the date of receipt) to:

(a) pay the debt or secure or compound the amount of the debt to the creditor’s reasonable satisfaction; or

(b) Apply to a court of competent jurisdiction (in South Australia it is the Supreme Court or the Federal Court of Australia) for orders setting aside the statutory demand.

A failure to undertake either of the above will result in the company being presumed insolvent and will allow a creditor to apply to the Court to wind up the company.

Application to set aside statutory demand

If your company has received a statutory demand, there are several avenues available to your company to apply for a court order setting aside a demand. The most common grounds are found in section 459H of the Corporations Act 2001 (Cth), where it is provided a company can claim:

– a genuine dispute exists in relation to the debt; and/or

– an offsetting claim exists against the party issuing the demand;

– Before of a defect in the demand, substantial injustice would be caused unless the demand was set aside; or

– There is some other reason why the demand should be set aside

These grounds are often raised in conjunction, given the similar nature of establishing each when applying to set aside a statutory demand.

Please note that a company cannot merely bring an application because it cannot afford to pay the debt owing to the creditor.

Winding up application

If the Company is does not bring an application pursuant to the power granted in section 459G to set aside the statutory demand and the creditor may proceed to apply to the Court to have the company wound up.

Alternative action

Considerable work is required to apply to set aside a statutory demand. As a less expensive first resort, a company may decide to alert a creditor of any defects in the demand before filing an application. A creditor may then withdraw the demand. If the demand is withdrawn within the 21 days compliance period the company will not need to make an application to have it set aside. If the creditor withdraws after an application has been made a costs order may be made by the court against the creditor for the unnecessary expenses incurred by the company.

Time is of the essence

It is important to review and pay careful attention to the requirements for a statutory demand as soon as it is served on you. Even if there is some dispute regarding the debt(s), if your company runs out of time to have the demand set aside, the only way to counter the demand will then be to pay the debt(s) (if resources are available) and avoid the serious consequences of non-compliance, and later sue for the money back.

Serious consequences of non-compliance:

If a company does not respond to a statutory demand within 21 days, the company will be taken to have failed to comply with the demand. It will then be presumed that the company is insolvent and the company will be susceptible to winding up applications.

To defend winding up applications, the company will have to provide detailed evidence of its solvency.

Even if the company is able to settle the debt with the creditor after winding up proceedings are commenced, there are circumstances in which the courts will allow other creditors to substitute the outgoing creditor’s place and continue the winding up of proceeds.

Get advice

It is important to act fast if your company has been served with a statutory demand. Each company and creditor relationship is different and it is imperative that you obtain the right advice in protecting a solvent company from being wound up.

We regularly act for companies that have been served with a statutory demands in negotiating a withdrawal of the statutory demand, bringing applications to set aside the statutory demand and defending winding up applications.

We also act for creditors seeking to issue statutory demands over a debtor companies who they believe to be insolvent.

If you need to set aside a statutory demand then time is very much of the essence. It is vital that you contact our statutory demand lawyers as soon as possible for a consultation – 21 days has been interpreted very strictly.

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Mark Gustavsson

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