If a company owes one or more debts which are due and payable to a creditor and which remain outstanding, it is possible that the creditor may decide to serve a statutory demand on the debtor company. The statutory demand may require the debtor company to either pay the debt(s) in full or provide security for the debt(s) to the creditor’s reasonable satisfaction within 21 days after the demand is served on the company.
Requirements for a valid demand
In summary the requirements for a valid statutory demand on a company are as follows:
Bear in mind the available grounds to have the demand set aside, and the likely costs outcome if it is set aside (discussed below). All of the circumstances should be considered before deciding to proceed with service of a demand.
Time is of the essence
If you are on the receiving end of a statutory demand, legal advice should immediately be sought.
If the debtor company does not take any action (i.e. comply with the demand, ensure that the demand is no longer in effect, or apply to the relevant Court) within 21 days of service of the demand, and the demand is still in effect, the creditor can immediately apply for the debtor company to be wound up and the Court “must” presume that the debtor company is insolvent. Extensions of time are not possible.
Aside from the very harsh effects of winding up proceedings on the debtor company, the onus will be on the debtor company to then prove that it is in fact solvent. In such circumstances the debtor company will not, without the leave of the Court, be able to oppose the application on a ground that it might otherwise be able to do so in an application to set aside the statutory demand.
Application to set aside a statutory demand
If however an application is made to set aside the statutory demand within 21 days of service, supported by an affidavit, and the application to set aside the statutory demand along with the supporting affidavit is served on the person who served the demand on the debtor company within the 21 day period, then the application to set aside the demand would be validly issued.
Grounds for setting aside the statutory demand
The Court must be satisfied either:
If the demand is set aside then there will be no automatic presumption of insolvency and it is likely that the creditor would have to pay the debtors costs of the application to set aside unless the debtor has behaved unreasonably.
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The information provided in this article is provided by way of general information only. It does not constitute legal advice, and should not be relied upon as such. Specific independent legal advice should be obtained before deciding to act, or not to act, upon the views expressed or information contained in this article.
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 S.459E of the Corporations Act 2001 (Cth) (Corps Act)
 being one of the class of persons under s.459P of the Corps Act
 s.459C (2) (a) of the Corps Act
 the Court can only grant leave if it is satisfied that the ground is “material” to proving that the company is solvent under s.459S of the Corps Act.
 Sufficient time must be allowed for service in compliance with s.109X of the Corps Act. Any person receiving a statutory demand must take action immediately.
 s.459G of the Corps Act
 s.459H of the Corps Act
 s.459J of the Corps Act
 s.459N of the Corps Act