Statutory demands are often used to recover debts however they need to be used carefully in order to be valid.
Companies who receive a statutory demand need to act quickly in order to avoid being wound up.
1. What is a statutory demand?
It is a notice to a company to pay a debt within 21 days of being served.
2. What happens if you do not comply with a statutory demand?
If the statutory demand is ignored, the company is deemed to have committed an act of insolvency and may be wound up. This is unless one of the following occurs within 21 days of service of the statutory demand:
- The full amount demanded is paid;
- The company brings Court proceedings to set aside the statutory demand; or
- The statutory demand is withdrawn in writing.
3. How is a statutory demand served?
A statutory demand is usually served by ordinary post on the registered address of the company. It may also be served personally on a director of the company.
4. What debts can be included in a statutory demand?
The debt must be currently due and payable and a minimum of $2,000. The debt must be quantifiable and not contingent.
If you are owed a number of debts by the same company, you can include them all in the one statutory demand.
5. On what basis can the company set aside the statutory demand?
The company can bring proceedings within 21 days of being served with the statutory demand to set it aside, for a number of reasons including:
A) There is a material defect.
For example:
- There was no accompanying affidavit or judgment.
- There was a mistake in the form such as the debt not being adequately described or incorrect.
It is extremely important to get the “paper work” involved with a statutory demand correct, as a defect may render the statutory demand invalid.
B) There is a genuine dispute with regards to the debt.
The Court will not determine the dispute. Instead they will consider whether there is a serious question to be tried. If there is a serious question to be tried in relation to the debt, the Court may set aside the statutory demand.
C) There is a genuine offsetting claim.
If there is an offsetting claim which brings the debt below $2,000, the Court may also set aside the statutory demand. The Court will look at the evidence presented to determine this.
Conclusion
Statutory demands are important documents and should never be ignored.
If an application to set aside the statutory demand is filed with the Court within 21 days of being served, it can have substantial costs consequences for either party if they are unsuccessful – in either bringing the application or defending it.
As such, whether you are issuing or defending a statutory demand it is important that you consult a lawyer to ensure that you are protected.
