Welcome to our guide on statutory demands in Australia.
In this article, we will provide you with a detailed overview of what a statutory demand is, its purpose, and the necessary steps to handle it effectively.
Whether you are a creditor or a debtor, understanding the intricacies of statutory demands is crucial to protect your interests.
What are Statutory Demands?
A statutory demands are a formal written notice issued by a creditor to a debtor under the Corporations Act 2001 in Australia.
It is a powerful tool used to demand payment of a debt owed by a company.
The purpose of a statutory demand is to provide a mechanism for creditors to enforce their rights and potentially initiate winding up proceedings against a debtor company if the debt remains unpaid.
Key Requirements for Valid Statutory Demands
To ensure the validity and enforceability of a statutory demand, certain requirements must be met, including:
- Amount and Nature of the Debt
- Properly Addressed and Served
- Complying with Time Limits
- Use of the Correct Form
We will explain these in more detail below.
Amount and Nature of the Debt
The demand must specify the exact amount of the debt, including any interest accrued, and clearly state the nature of the debt owed.
It is essential to provide comprehensive details to avoid any ambiguity or potential challenges to the demand.
The debt must be due and payable at the date of issuing the statutory demand, and there must not be any genuine dispute about the debt.
Properly Addressed and Served
Statutory demands must be properly addressed to the debtor company and served at its registered office.
It is crucial to accurately identify the correct registered office address to ensure the demand is valid.
You can do this by obtaining a current extract from the online database at ASIC on the same day of service of the statutory demand.
Incorrect service can cause statutory demands to be set aside, so this must be done correctly.
Complying with Time Limits
The demand must allow the debtor company a minimum of 21 days from the date of service to either pay the debt or make arrangements to settle it. They must:
- Pay the debt; or
- Secure of compound for the debt; or
- Apply to set the statutory demand aside.
If a creditor tries to take the next step before the expiry of 21 days, then it may render the demand defective and unenforceable.
Use of the Correct Form
A statutory demand must be prepared using the appropriate form 509H as prescribed by Schedule 2 of the Corporations Regulations.
Using the correct form ensures compliance with legal requirements and helps avoid potential challenges.
A defect in the demand causing substantial injustice will allow statutory demands to be set aside.
Affidavit or Judgment in Support of Statutory Demands
When issuing a statutory demand in Australia, it is necessary to provide additional supporting documents with the demand.
Two commonly used documents in this context are the Affidavit and Judgment.
Affidavit in Support
The Form 7 affidavit is a written statement of facts sworn or affirmed under oath by an individual with first-hand knowledge of the matter.
In the context of a statutory demand, an Affidavit is typically prepared by the creditor or their legal representative.
It serves the purpose of providing supporting evidence and confirming the existence of the debt claimed in the demand, attests to the fact that the debt is due and payable, and to the fact that there is no genuine dispute.
It is crucial to ensure that the Affidavit is accurate, truthful, and supported by relevant documentation to enhance the credibility and enforceability of the statutory demand.
An incorrect affidavit in support can cause statutory demands to be set aside, so extreme care should be taken.
Judgment in Support
In some cases, the creditor may have obtained a judgment from a court against the debtor prior to issuing the statutory demand.
A judgment is a formal decision rendered by a court, determining the rights and obligations of the parties involved.
When a judgment exists, it can be used as a powerful supporting document in the statutory demand process, as it makes it a lot more difficult to set aside.
The Judgment should clearly state the details of the court decision, including the amount owed by the debtor, any interest or costs awarded, and any specific orders made by the court.
Including a copy of the Judgment with the statutory demand strengthens the creditor's position and provides irrefutable evidence of the debt owed.
Seeking professional legal advice throughout this process is highly recommended to ensure the validity and effectiveness of the statutory demand and the supporting material.
Responding to Statutory Demands
Receiving a statutory demand can be a daunting experience for a debtor company.
However, it is important to respond promptly and take appropriate action to protect your interests.
Here are the key steps to follow when responding to a statutory demand:
Seek Legal Advice
As soon as you receive a statutory demand, it is crucial to seek professional legal advice from a qualified lawyer experienced in corporate and insolvency law.
They can guide you through the process, assess the validity of the demand, and advise on the best course of action.
Not complying with statutory demands can have very serious consequences, and so you must speak to a lawyer as soon as possible. Remember 21 days means 21 days!
Strictly within 21 days, you must:
- Pay the debt; or
- Secure of compound for the debt; or
- Apply to set the statutory demand aside.
Alternatively, statutory demands can also be withdrawn.
Carefully Review Statutory Demands
Thoroughly review the statutory demand, paying close attention to the details provided.
Check for any defects or inconsistencies that could potentially invalidate the demand.
Your legal advisor can help identify any potential grounds for challenging the demand.
If you can identify any issues which may potentially allow statutory demands to be set aside, then you may be able to get it withdrawn first and save the cost of expensive litigation.
Negotiate or Dispute the Debt
If there are genuine disputes regarding the debt claimed in the statutory demand, it is crucial to respond in writing to the creditor within the 21-day timeframe.
Engaging in negotiations or disputing the debt can potentially resolve the matter without resorting to legal proceedings.
While negotiating, it is vital that you keep an eye on the 21 day timeframe.
Enter into a Repayment Arrangement
If you are unable to pay the debt in full within the specified timeframe, it may be possible to negotiate with the creditor or enter into a repayment arrangement.
If this happens, then it must happen before the 21 day time limit expires, or you will be presumed insolvent and the creditor can commence winding up proceedings.
Seeking professional advice can help you navigate these negotiations effectively.
Setting Aside Statutory Demands
If you believe the statutory demand is defective, improperly served, is genuinely disputed, or contains false or misleading information, you may apply to the court to set it aside.
This legal process requires careful preparation and presentation of evidence supporting your case.
We would always recommend engaging a solicitor and potentially a barrister.
Statutory Demands – Key Takeaways
Navigating the complexities of statutory demands in Australia requires a clear understanding of the legal framework and procedural requirements.
This guide has provided you with valuable insights into the nature of statutory demands, the necessary steps for a valid demand, and how to respond effectively.
Remember, seeking professional legal advice is essential to protect your rights and interests throughout the process.
This guest article was written by Wayne Davis from Stonegate Legal.
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