If a company owes you money and is refusing to pay, there are several things you can do to try and recover your money: one avenue is issuing a statutory demand.
What is a statutory demand?
A statutory demand is a legal document sent by a creditor to a debtor company requiring it to pay
When you are owed money, you are known as a creditor and the company that owes you money is known as a debtor company.
A creditor can issue a statutory demand if they are owed a debt, or debts, that are due and payable and total $2,000 or more.
A valid statutory demand must:
- specify the debt(s) owed and the amounts;
- require the debtor company to pay the amount demanded, provide security or compound for the amount demanded, to the creditor’s satisfaction, within 21 days after the demand has been served;
- be in writing and in the prescribed form; and
- be signed by or on behalf of the creditor.
A statutory demand must be accompanied by either a
Section 459E of the Corporations Act 2001 (Cth) details what makes a valid statutory demand.
A statutory demand must be served on a debtor company. This can be done by leaving it at, or sending it by post, to the registered office of the debtor company, or by delivering a copy of the demand personally to one of its directors if they reside in Australia.
If the registered office is located in a different state to you, then the requirements of interstate service will need to be complied with.
Why issue a statutory demand?
A debtor company served with a statutory demand should take the situation seriously as
Whilst it was not intended to be a debt recovery tool, a statutory demand can be an effective means to motivate a debtor company to pay its debt(s) in full, or negotiate a suitable payment arrangement, to avoid the serious consequences of failing to comply.
A statutory demand provides the creditor with an ability to demand payment without incurring the cost of initiating upfront legal proceedings to obtain a judgment, which can be quite costly.
Summary of the Benefits
1. The seriousness of a statutory demand motivates a debtor company to resolve any outstanding debt(s) it may owe to a creditor.
2. A statutory demand is a cost-effective alternative to commencing upfront legal proceedings.
What are the risks?
A debtor company served with a statutory demand has the ability to apply to the court for an order setting aside the statutory demand.
Risk Alert
A debtor company may bring an application seeking to have the statutory demand set aside and seek an order against you to recover their costs.
Any application of this nature must be made within 21 days of service of the statutory demand and must set out the grounds relied upon and be accompanied by a supporting affidavit.
A statutory demand may be set aside if there is:
- a genuine dispute about the existence of the debt; or
- an offsetting claim by the company which would reduce the debt to below the statutory minimum (currently $2,000).
The debtor company must satisfy the court that the dispute or offsetting claim is genuine. In considering this application, the court does not determine the merits of the dispute, but rather considers whether there is a “serious question to be tried”.
A debtor company may also apply to set aside a statutory demand on the basis that there is:
- a defect in the
demand, and substantial injustice will be caused unless it is set aside; or - there is some other reason why the demand should be set aside.
A “defect” includes:
- an irregularity;
- a misstatement of an amount or total;
- a misdescription of a debt or other matter; and
- a misdescription of a person or entity.
The court must be satisfied that the defect has caused the debtor company a substantial injustice. A minor irregularity or misstatement is not enough.
If the debtor company is successful in its application to set aside the statutory demand, then the debtor company may seek to recover their legal costs associated with the application from the creditor.
Do you need help?
Hunt & Hunt’s national insolvency and restructuring team help our clients recover and resolve difficult or disputed debts.
Hunt & Hunt has one of the strongest insolvency practices in the country having been engaged in thousands of matters involving statutory demands. Our considerable experience across all areas of insolvency litigation across all jurisdictions within Australia provides comfort to our client base who know that they are going to achieve an outcome favourable to them.
If you require advice or assistance with the issue of a statutory demand, please don’t hesitate to get in touch.
