Statutory Demands pursuant to the Corporations Act are a mechanism available to creditors for the payment of debt. Upon the expiry of a Statutory Demand, the Corporations Act presumes that the company is insolvent and allows the entity making the demand to apply to the court for their winding up on grounds of insolvency.
Being served with a statutory demand does not mean that you will be presumed insolvent if you cannot pay the debt within 21 days as they can be withdrawn or set aside in circumstances where they do not comply with the Corporations Act or the Corporations Rules.
Below are six common defects seen in Statutory Demands which either together, or on their own, can make them defective to the extent that a creditor cannot rely upon them to apply for the winding up of a debtor company on the basis of the abovementioned presumption of insolvency.
The courts have held that statutory demands are not debt collection tools to be used to apply pressure to debtors to pay outstanding amounts and as such, in circumstances where there is a genuine dispute as to the amount or existence of the debt a Statutory Demand should not be served.
Courts will, subject to some exceptions, set aside a statutory demand where a debtor can sufficiently establish a genuine dispute to an amount contained within a statutory demand.
Incorrect identification of debtor or creditor
On its own, the incorrect identification of a debtor or creditor, by name or Australian Company Number, is not sufficient to set aside a Statutory Demand, particularly when the debtor makes an appearance to defend the proceeding.
However, it may give the debtor grounds to have the Statutory Demand set aside in attempt to delay proceedings or increase costs for the creditor.
The Statutory Demand describes an incorrect amount is owing or gives as poor description of the amount owing
This is a ground which on its own can have a Statutory Demand set aside. The recipient of a Statutory Demand is entitled to know exactly what it owed to whom, and how the debt might be discharged. For example:
- Miscalculating interest that may be owed;
- Overstating the debt wilfully or vexatiously; or
- Not particularising sufficiently the individual debt or debts.
All of the above may be grounds on which a Statutory Demand is set aside because of a wrong or poor description of the debt.
As a debtor must be a registered company pursuant to the Corporations Act, a common method of service of Statutory Demands permitted is to post the Statutory Demand to the company’s registered office.
A debtor should always keep in mind that this method of service is strictly a deeming provision and as such is capable of rebuttal. On its own, this issue can prevent a creditor applying for the winding up of a debtor, particularly in circumstances where the address has not been described accurately in correspondence enclosing the Statutory Demand.
Affidavits in support of Statutory Demands
Statutory Demands can be served on debtors on the basis of non judgment debts. They require an Affidavit in support of the debt to be served with the Demand.
A common basis upon which non defective Demands are set aside is when supporting Affidavits are defective.
Examples of defective Affidavits are:
- The Affidavit fails to comply with the court rules;
- The failure to include the words “due and payable” in the Affidavit accompanying the Statutory Demand; and
- There is no affidavit at all.
Part payment of judgment debt
In circumstances where a Statutory Demand is based upon a judgment debt, generally no supporting Affidavit is required. However, in circumstances where part of the judgment debt has been paid by the judgment debtor and the creditor issues a statutory demand in the full amount of the judgment without providing an Affidavit in support deposing to the varied amount that is owing, the courts will set aside a Statutory Demand on this basis.
Where to from here?
If you have been served with a statutory demand recently and you can see any or all of these defects above, you should see your solicitor for appropriate advice. It may be that it is improper for a creditor to issue a statutory demand and as such they must rely on more traditional methods of debt recovery through the courts.