If you are a business owner that trades through a company, it’s crucial that you understand the significance and effect of statutory demands. They are an important legal tool which, if not handled correctly, can result in your company being wound up and a liquidator appointed to it.
Despite the fact that statutory demands appear to be simple documents, the law surrounding them is complex and the timeframe for compliance short. In this article, we will provide you with a comprehensive overview of statutory demands in Australia, including what they are, how they work, and what you can do to protect your business, so that you understand when you might need to consult a lawyer.
What is a Statutory Demand?
A statutory demand is a formal written demand issued by a creditor to a debtor company pursuant to Section 459E of the Corporations Act 2001 (Cth) (Act). It is a legal document that requires the debtor company to either:
- pay to the creditor the amount of the debt (or total of the amounts of the debts) owed; or,
- to “secure or compound” for the amount/amounts owed, to the creditor’s reasonable satisfaction.
If a debtor company fails to comply with a statutory demand within the required timeframe, a presumption of insolvency arises – which may be relied upon by the creditor should it apply to a Court to have the company wound up and a liquidator appointed to it.
In practice, the issue of a statutory demand often leads to the payment of an outstanding debt, litigation regarding the validity of the demand itself, or the winding up of an insolvent company.
When can you issue a statutory demand?
A statutory demand can be issued where a party is owed money by a company (i.e. they are a “creditor” of the company) and the following criteria are satisfied:
- the debt is owed to the creditor by a company;
- the debt owed (or, where there are multiple debts owed to the same creditor, the total of the amounts of the debts owed) is at least the statutory minimum amount;
- the debt is due and payable by the debtor company;
- there is no genuine dispute about the existence of the debt or the amount of the debt (or debts).
What are the formal requirements for a Statutory Demand?
There are several formal requirements that must be met for a statutory demand to be valid, being that the demand must:
- be in writing;
- be in the prescribed form – Form 509H (which can be found in Schedule 2 of the Corporations Regulations 2001 (Cth));
- if it relates to a single debt, it must specify the debt and its amount;
- if it relates to two (2) or more debts, it must specify the total of the amounts of the debts (in addition to the amounts of each individual debt);
- require the company to pay the amount of the debt (or the total of the amounts of the debts) or to secure or compound for that amount (or total) to the creditor’s reasonable satisfaction, within the statutory period after the demand is served on the company;
- be signed by (or on behalf of) the creditor;
- be accompanied by an affidavit that verifies that the debt (or the total of the amounts of the debts) is due and payable by the company – however this is not required where the debt is a judgment debt.