Statutory Demands are aggressive legislative tools used to recover outstanding monies from incorporated entities.
When issuing a Statutory Demand there must be no dispute or doubt as to the amount owed. For this reason, statutory demands are usually reserved for recovery of judgment amounts; however, they can be used to recover other debts in the appropriate circumstances.
Time Limits under a Statutory Demand
Once a Statutory Demand has been served on a company, the company has 21 days within which to either pay the amount owed, or apply to the Supreme Court to have the demand set aside.
Applications to Set Aside a Statutory Demand
The grounds on which a demand can be set aside are outlined in section 459G and 459J of the Corporations Act and are broadly as follows:
- Where there is a dispute as to the amount owed;
- Where there is an offsetting claim;
- Where there is a defect in the demand and substantial injustice unless the demand is set aside;
- There is some other reason why the demand should be set aside.
If you serve a statutory demand is issued, and the Debtor applies to have it set aside you have two options:
- To consent to an order that the demand be set aside;
- Defend the application.
Whether you consent to set aside the demand will depend on the grounds the debtor alleges that the demand should be set aside.
If you choose to defend any application to set aside the statutory demand, and the demand is ultimately set aside by the court, it is likely that the court will order that you pay the other parties costs of the application.
Consequences if Statutory Demand is not Set Aside or Complied With Within the Time Limit
If 21 days passes after being served with the Statutory Demand and the debtor does not either apply to have it set aside, or make payment in full of the amount owed, the Debtor has failed to comply with the Statutory Demand. Failure to comply with a Statutory Demand is an act of insolvency by the debtor company and you are entitled to apply to the court to have the company wound up. The costs of this application are recoverable from the Company.
Once you have an order that the company be wound up a liquidator will step in and take over the company’s assets and you will be registered as creditor. You must register a creditor and if there are sufficient funds in the company, the liquidator will pay either the full amount owed, or a portion of the amount owed to you, once it has finalised the company’s affairs.