Understanding Statutory Demands in Australia

When a company can’t pay its debts when they fall due, it may be insolvent. In these situations, creditors have legal options to recover what they’re owed — one of the most powerful being a Statutory Demand.

What is a Statutory Demand?

A Statutory Demand is a formal notice from a creditor asking a company to pay a debt or provide security for it. It’s issued under section 459E of the Corporations Act 2001 (Cth) and should never be ignored.

If a company doesn’t respond to a Statutory Demand within 21 days, the company is presumed insolvent. This allows the creditor to apply to the court to have the company wound up (placed in liquidation).

When can a Statutory Demand be issued?

A creditor can issue a Statutory Demand if:

• the debtor is a company (not an individual).
• the debt is at least $4,000 (this is the statutory minimum as at the time of writing this article).
• the debt is due and payable.
• there is no genuine dispute about the debt.

What must a Statutory Demand include?

For a Statutory Demand to be valid, it must:

• be in writing using Form 509H.
• identify both the creditor and the debtor company.
• be signed by the creditor or their authorised agent.
• state the amount owed.
• provide an Australian address where the payment can be made.

Mistakes in the form or misleading information can lead to the Statutory Demand being set aside by the court.

How is a Statutory Demand served?

A Statutory Demand must be served on the debtor company at its registered office. If this is not possible, it may be served on a company director.

What are my options after receiving a Statutory Demand?

If your company has been served with a Statutory Demand, you have 21 days to either:

• pay the debt in full.
• negotiate with the creditor for a payment plan or settlement.
• apply to court to have the Statutory Demand set aside — for example, if there is a genuine dispute about the debt.
• ask the creditor to withdraw the Statutory Demand citing relevant grounds.

Failure to act within 21 days gives the creditor grounds to lodge a Winding Up Application in Court seeking a Winding Up Order against the debtor.

What is a Winding Up Order?

A Winding Up Order is a court order that forces a company into liquidation because it cannot pay its debts. The company’s assets are sold off and the proceeds distributed to creditors.

Grounds for Setting Aside a Statutory Demand

Once served with a Statutory Demand, you may apply to court to set it aside if either:

• there is a genuine dispute about the debt; or
• you have an offsetting claim (a counterclaim reducing the debt below the $4,000 statutory minimum threshold); or
• the Statutory Demand contains defects, and substantial injustice will be caused unless the Statutory Demand is set aside; or
• there is some other reason why the Statutory Demand should be set aside.

Any application to set aside the Statutory Demand must be filed within 21 days of being served.

Grounds for getting the creditor to withdraw the Statutory Demand

A company served with a Statutory Demand can write to the creditor within 21 days of being served and request that they withdraw it if there are valid reasons, such as a genuine dispute. It is best to get the withdrawal confirmed in writing.

Final Thoughts: Get expert legal advice

A Statutory Demand is a serious legal document with potentially severe consequences if ignored. If your company receives one or needs to issue one, it’s critical to seek professional legal advice.

Contact our Litigation team if you require assistance issuing a Statutory Demand or if you have been served with one.