Statutory Demands

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What is a Statutory Demand?

Section 459E of the Corporations Act 2001 (Cth) (“the Act”) provides that a creditor may serve on a company a Statutory Demand for a debt that is due and payable by the company to the creditor, or two (2) or more debts due and payable by the company, subject to that debt exceeding the statutory minimum which is currently $2,000.

A Statutory Demand provides that the company is to pay the amount of the debt, or total amount of debts within 21 days after the demand is served or secure the payment of the debt or debts within a reasonable time. If the company fails to do so, the creditor may then make an application for the company to be wound up.

When can you use a Statutory Demand?

A precondition of issuing a Statutory Demand is that the outstanding debt is not disputed.  A company may issue a Statutory Demand:

  • once a Court has entered a judgment against the debtor in relation to the debt; or
  • prior to commencing proceedings, but only if you are absolutely sure that there is no possibility of a dispute.

What must a Statutory Demand show?

A Statutory Demand must:

  • specify the debt and its amount, or if there is more than one debt, the total amount of all debts;
  • relate to a debt or debts which are due and payable at the date of the demand
 (i.e. they cannot relate to contingent, prospective liabilities or unliquidated damages);
  • be in writing and in the prescribed form (see Form 509H); and
  • signed by the creditor or on behalf of the creditor (e.g. the creditor’s solicitor).

In circumstances where no judgment has been entered against the company, a Statutory Demand must also be accompanied by an Affidavit supporting the creditor’s claim. An Affidavit in Support of a Statutory Demand must verify that the debt is due and payable and is not disputed by the company.

Service of a Statutory Demand

The Statutory Demand must be served on the registered office of the company. These details can be obtained by undertaking an ASIC company search. It is important to have a record of the document being sent, therefore we recommend that a Statutory Demand is couriered to the company’s registered office.

You cannot serve a Statutory Demand on a foreign company as separate procedures are in place to wind up foreign companies.

 Applications to Set Aside Statutory Demands

Within 21 days of receiving a Statutory Demand, a company may file an application for it to be set aside. For such an application to be successful, the company must satisfy the Court that:

  • there is a genuine dispute;
  • the debtor has an offsetting claim;
  • there is a defect in the Statutory Demand which causes substantial injustice to the debtor; and or
  • any other reason that may convince the Court to set aside the Statutory Demand.

After the application to set aside the Statutory Demand has been heard, the Court may than elect to:

  • set aside the Statutory Demand or vary it; or
  • dismiss the application.

Where the Statutory Demand is set aside, the Court may order costs to be paid by the person who served the Statutory Demand.