What is a Statutory Demand?

A Creditor’s Statutory Demand – commonly referred to as a “Statutory Demand” – is a document that can be issued pursuant to the Corporations Act 2001 by a creditor upon a debtor company, seeking the payment of a claimed liquidated debt.

In order to issue a Statutory Demand there must be a debt of over $2,000.00 which is either:-

a) A court judgment (that is, the creditor has already sued the debtor and obtained a judgment in the creditor’s favour), or

b) A debt of a known sum of, which there is no genuine dispute.

If the debt is less than $2,000.00 or if there is a genuine dispute regarding the debt then the debtor may be able to have the Court set aside the Statutory Demand.

The effect of a Statutory Demand is that the debtor has 21 days from service within which to:-

i. Pay the claimed debt in full,

ii. Reach an agreement with the creditor as to payment (such as a compromise settlement) or

iii. Commence Court proceedings to set the demand aside.

If the debtor does not do any of the those three courses of action and the 21 day period expires then the debtor has failed to comply with the Statutory Demand. Failing to comply with a Statutory Demand is a deemed act of insolvency. Based upon that act of insolvency the creditor can then commence proceedings to wind-up the debtor and appoint a liquidator, on the basis that the debtor company is insolvent. The debtor can only defend any such proceedings by proving that it is solvent – the underlying debt and Statutory Demand are no longer relevant and cannot be raised during the wind-up proceedings.

As such, a debtor company that receives a Statutory Demand must act immediately – whether to pay in full, negotiate with the creditor or apply to the Court to have the demand set aside. Failure to do so will lead to an act of insolvency which may see the company wound up.

For creditors a Statutory Demand is a quick, effective and inexpensive means of encouraging a debtor pay the debt owing (whether in full or to an agreed compromise amount) or face wind-up proceedings.

If you are a creditor owed money from a company then get in touch with one of our team by contacting your local Prime Lawyers office or sending an online enquiry.

We have debt recovery and litigation lawyers located at Sydney, Parramatta, Chatswood, Sutherland and Wollongong.