Don’t ignore letters of demand issued by your creditors – particularly if they are a certain type called a “Statutory Demand”. These demands can be issued to companies and the consequences of failing to respond to one of them can be severe.
A Statutory Demand is a type of demand that can be issued pursuant to the Corporations Act 2001 (Commonwealth) – so long as it “due and payable”.
It also has a number of technical requirements:
- It must be in the proper form;
- Be addressed to the right party;
- Be for a set amount;
- Be above the statutory minimum of $2,000;
- Be served on the correct address; and
- Be accompanied by a judgment issued by a court or an affidavit that explains that the debt is due and payable.
As previously mentioned, a failure to respond to a Statutory Demand has severe consequences. If a company does not respond to a Statutory Demand, it is presumed to be insolvent, and its creditor can make an application to wind up the company.
Responding to a Statutory Demand
It is therefore critical to respond to a Statutory Demand as soon as you obtain one. If your creditor is not willing to withdraw the Statutory Demand, then you must within the period of 21 days after receiving a Statutory Demand, apply to the court to set the Statutory Demand aside. This can only be done on certain conditions:
- If there is a genuine dispute in relation to the debt; or
- If you have a genuine offsetting claim, for example, the creditor also owes to you a certain amount of monies that can be applied to the debt. If, after applying the offset, the amount outstanding is below the statutory minimum of $2,000, the court must set the Statutory Demand aside; or
- If there is a defect in the Statutory Demand that would cause substantial injustice if the Statutory Demand is not set aside.
This period is a strict period and no extensions of time are permitted. If this period expires there is absolutely no opportunity to contest the Statutory Demand.
Creditors and Statutory Demands
We have noticed in the past that some creditors use (or rather, abuse) this process as a quick and easy method of debt recovery. Given the serious repercussions of not dealing with a Statutory Demand, you should train your staff to identify Statutory Demands so that you can be alerted to them as soon as they are received.
Statutory Demands can also be sent to the registered offices of a company – which in our experience, for a small to medium sized company, often an accountant or a financial planner. If this is the case for you, then you either need to check regularly with your accountant or find a trustworthy accountant that will report to you promptly when a Statutory Demand is received.
Call is if you are encountering this issue!
We at Adams Partners have a wealth of experience in relation to the above issues can help you deal with Statutory Demands. If you need help with responding to or resisting a Statutory Demand, please do not hesitate to contact us today.