​​What is a statutory demand and when would I use one?​

Sometimes a debtor’s failure to pay your business has a fair and legitimate explanation.  Other times it might seem to be part of the debtor’s normal business practices.   

The fact that they no longer answer your calls leads you to believe it is more likely the latter, and you are fed up with it.  Obviously, your first desire is to get paid, but you also wish this company could be taken out of the business community to prevent other businesses being hurt. 

What is a statutory demand? 

When a company owes you money, you have two main pathways to go down: 

  • Follow the standard debt collection procedure.  This involves filing a claim in the relevant state court – which can be defended, lengthening the process.  Once you have a judgment, you can apply for enforcement, such as a charging order over any real property or a warrant to sell any property owned by the company; or 
  • Issue a statutory demand seeking repayment of the debt. 

A statutory demand is a formal notice issued under the Corporations Act as a first step to having a company wound up (having a liquidator appointed to shut the company down). 

A company that receives a statutory demand has 21 days in which to pay the debt or to file a court application seeking to set the statutory demand aside.  If the company does neither of these things, a legal presumption of insolvency is created, which forms the foundation of an application to Court to have the company wound up. 

The implications of having your company wound up are that your business stops trading, and any assets in the company are taken by an external liquidator to sell.  As the consequences are so serious, your bad debtor is unlikely to continue ignoring you. 

When would I use a statutory demand? 

The standard debt collection process is often time-consuming and costly, as you will usually want to pay a lawyer to handle some or all of the process.  Unfortunately, if the bad debtor turns out not to have any money, then you will be stuck without your invoices unpaid and with all these collection costs on top. 

A statutory demand can only be issued for debts that you do not consider the debtor could genuinely dispute.  If the invoices were issued a long while ago, have been followed up numerous times, and the debtor has never raised an issue, it is unlikely they will be able to genuinely dispute the debt. 

By issuing a statutory demand for a debt, you shortcut the debt collection process, with two main probable outcomes: 

  • The debtor pays in full within the 21 day period; or 
  • The statutory demand expires, and you have the leverage required to remove the bad debtor from the business community. 

As the consequences for not complying with a statutory demand are so serious, the legislation sets out strict requirements for the form of the demand and service on the company.  Our expert term can guide you through the process by:  

  • determining if a statutory demand is your best option; and  
  • Issuing a compliant demand on your behalf. 

If you would like our assistance issuing a statutory demand, call us on 1300 654 590 or email us at wehelp@adlvlaw.com.au.

 

The information contained in this post is current at the date of editing – 21 October 2024.

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If you are a director and member of a company and ready to shut down your solvent business through a members’ voluntary liquidation, you may be wondering how the process looks. In particular, you may be wondering what your role will be as the liquidation progresses.

Read more below to see how you may stay involved with the company throughout the liquidation process and how your role might change if you opt out.

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