“A failure to respond to a statutory demand can have very serious consequences for a company. In particular, it may result in the company being placed in liquidation and control of the company passing to the liquidator of the company.”

What would you do if you saw the notice above in a box prominently displayed at the top of a document addressed to your company claiming that money is due and owing and specifying that you take urgent action within 21 days?

I provide peace of mind to my clients, and will fight like hell to do so, however it never ceases to amaze me that there are company directors out there who continue to ignore statutory demands which have the above warning and 21 day time limit clearly printed on them. To ignore a statutory demand is just madness and you are putting yourself through unnecessary pain and strain if you do.

If you ignore a statutory demand and take no action until 21 days after service any or all of the following will occur:

  • A presumption arises under the Corporations Act 2001 that your company is insolvent and must be liquidated
  • You are giving the person who issued the statutory demand a “free hit” in the sense that they can take advantage of the presumption of insolvency to have a liquidator appointed to take control of your company and sell off the assets – just imagine how much your competitors would like to be given this “free hit”!
  • You will need to commence court proceedings to prove that your company is not insolvent. That means that you will need to show the court, and the person who issued the statutory demand, your company’s balance statements, debtors, cash at bank, assets and/or your personal assets and debts – further information that may give a free commercial advantage to your competitors
  • Not only will you need to focus on the debt claimed by the person who issued the statutory demand, the fact that court proceedings are brought against your company to have it wound up in insolvency must be publicly advertised and all of your other creditors are entitled to have debts owed to them taken into consideration by the court – a situation which may be taken advantage of by your competitors and/or other creditors and which can be devastating to your cash flow

How you can help me bring peace of mind to you, or your clients:

  • Ensure that the registered office of the company is up-to-date. Under the Corporations Acts 2001, the directors do not need to be served personally with a statutory demand – it only needs to be served on the registered office, and if the address is not accurately recorded on the record or not attended, the 21 day period can expire without the directors even knowing that a statutory demand has been issued
  • Know what a statutory demand looks like – an example is reproduced below. If you or your clients are served with one of these – either pay the debt claimed within the 21 day period or seek legal advice straight away – no exceptions!
  • Information I will need if a statutory demand is served, so I can give you thorough advice may include: 
  • Is the debt claimed a legitimate debt, or is there a reason why the debt should not be paid? 
  • What other debts are owed by the company?
  • I need to know about the company’s cash flow situation
  • What assets are owned by the company?
  • What is the personal financial situation of the directors?

Situations I have seen:

  • A statutory demand was served on a registered office which is actually a vacant residential property. The 21 day period expired and a liquidator was appointed to the company
  • A company director failed to act within the 21 day period after a statutory demand was served. The company had a potential claim against the creditor for $6,000,000.00 – which was more than 30 times the debt claimed, but there was still a requirement to establish solvency to the satisfaction of the court
  • A statutory demand was served and an application commenced in the Federal Court to set aside the statutory demand, which was resisted on the basis that the application and supporting affidavit were not served within the 21 day period. I successfully argued that the documents were validly served and the statutory demand was set aside
  • A statutory demand was served and an application made within the 21 day period to have the demand set aside due to a clear dispute about the debt. I was unable to persuade the creditor’s lawyers that they should withdraw the statutory demand, and the Supreme Court ordered that the demand be set aside and the “creditor” pay costs to my client

If you see a statutory demand – call me straight away. I, or one of my team, will assist you (or your client) through the minefield of law relating to statutory demands and help you achieve peace of mind.

EXAMPLE STATUTORY DEMAND -

Form 509H 

(paragraph 459E (2) (e)) 

Corporations Act 2001

CREDITORS STATUTORY DEMAND FOR PAYMENT OF DEBT

To Company Pty Ltd ACN 123 456 789 of 123 Empty House Street, Nowheresville, 2123 in the State of New South Wales (“the company”).

  1. The company owes Greedy Gordon of 66 Evil Street, Hades 4123 in the State of Queensland (“the creditor”) the amount of $100,000.00, being the amount of the debt described in the Schedule.
  2. The amount is due and payable by the company.
  3. The creditor requires the company, within 21 days after service on the company of this demand: 
  1. to pay to the creditor the amount of the debt; or
  2. to secure or compound for the amount of the debt, to the creditors reasonable satisfaction. 
  1. The creditor may rely on a failure to comply with this demand within the period for compliance set out in subsection 459F (2) as grounds for an application to a court having jurisdiction under the Corporations Act 2001 for the winding up of the company.
  2. Section 459G of the Corporations Act 2001 provides that a company served with a demand may apply to a court having jurisdiction under the Corporations Act 2001 for an order setting the demand aside. An application must be made within 21 days after the demand is served and, within the same period: 
  1. an affidavit supporting the application must be filed with the court; and
  2. a copy of the application and a copy of the affidavit must be served on the person who served the demand. A failure to respond to a statutory demand can have very serious consequences for a company. In particular, it may result in the company being placed in liquidation and control of the company passing to the liquidator of the company.
  1. The address of the creditor for service of copies of any application and affidavit is care of:

Pay or Else Lawyers

66 Easy Street

BRISBANE QLD 4000

SCHEDULE

Please see original article (found at the bottom of this page) to view table.

Dated: June 2013

Signed:

Print name: Maximum Payne

Capacity: Solicitor for the creditor

Corporation or partnership name (if applicable): N/A

NOTES:

  1. The form must be signed by the creditor or the creditor’s solicitor. It may be signed on behalf of a partnership by a partner, and on behalf of a corporation by a director or by the secretary or an executive officer of the corporation.
  2. The amount of the debt or, if there is more than one debt, the total of the amounts of the debts, must exceed the statutory minimum of $2,000.
  3. Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that: 
  1. verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and
  2. complies with the rules. 
  1. A person may make a demand relating to a debt that is owed to the person as assignee.
  2. This form was amended in 2006 as part of amendments of the Corporations Regulations 2001. For the period of 12 months after the commencement of those amendments a person may comply with paragraph 459E (2) (e) of the Corporations Act 2001 in relation to a statutory demand for payment of debt by using: 
  1. the version of this form that was in force immediately before the commencement of the amendments; or
  2. this version of the form. 

* Please note formatting of the example statutory demand varies slightly depending on an individual’s web browser