What is a Statutory Demand in Debt Collection?

If so, you are likely in a position in which a debtor of yours that continues to not pay their debt to you as agreed upon.

This can be an extremely frustrating thing for creditors as it can be difficult and expensive to finally get those people to pay up.

If this is the case for you, it may be appropriate to consider serving your debtor with a statutory demand.

A statutory demand is a very useful tool and, when used right, can be very effective in getting your debtor to pay.

In this article our partner statutory demand lawyers will discuss the basics of a statutory demand and how you can use it to collect debts from difficult clients.

What is a Statutory Demand?

So, what exactly is a. statutory demand? A stat demand is a formally made request for a debtor company to pay the debts they owe to a creditor.

In order for a statutory demand to be effective, there is a short process you will have to engage in. Similar to a letter of demand, it is generally only used as a last resort as there would be no reason for a stat demand to be sent if the debtor is abiding by the terms of the debt.

This means that before sending a letter of demand a creditor will generally exhaust all other options, such as reminders or informal letters/emails, to get the debtor to pay.

To send a statutory demand, it is not necessary to involve the court to any extent, but a debtor continuing to not pay the debt after the demand has been sent may result in the need for a court. 

As a business, receiving a statutory demand is extremely serious and poses a threat to the continuation and well-being of your business. It may result in the need to liquidate or other forms of action based on insolvency.

When Can I Make a Statutory Demand?

So, now that we have discussed what a statutory demand is, when can one be made?

Stat demands can be extremely useful to you as a creditor, but you cannot send them to whomever, whenever you please.

There are rules regarding when it is deemed appropriate to send a letter of demand.

These rules along with all of the other rules regarding statutory demands are governed and established by the Corporations Act 2001, which states:

“Creditor may serve a statutory demand on a company
(1) A person may serve on a company a demand relating to:
(a) a single debt that the company owes to the person, that is due and payable and whose amount is at least the statutory minimum; or
(b) 2 or more debts that the company owes to the person, that are due and payable and whose amounts total at least the statutory minimum.”

How Should it Look?

So, you are considering serving a debtor with a stat demand. You may be wondering, how should a stat demand look? What form should it take?

If you are asking this question, I assure you that you are not alone.

Statutory demands are quite detailed and complex documents, so it may be a challenge to write one to an untrained person.

There are various requirements for a statutory demand, however, which are essential, and you must ensure that you follow them.

If not, your stat demand can be discarded by a judge if your matter proceeds to court.

The requirements for a stat demand are, again, established in the Corporations Act 2001, which states that

• It must be in writing and use the correct form, the form being Form 509H;
• It must accurately identify the debtor and the creditor;
• The debtor must be a company (Pty Ltd);
• The debt must be over $4,000.00;
• It must require the debtor company to pay the debt or engage a payment plan with the debtor within 21 days;
• It must accurately and effectively identify and make clear the debt or debts owing by the debtor company; and
• It must be signed by the creditor.

What Happens When a Statutory Demand is Served on Me?

The other side of a statutory demand is the debtor.

When you serve a statutory demand on a debtor, it is wise to know the options they will have and what they will experience so that you know how the process will go for both parties.

Furthermore, you may at some point in your business life have a statutory demand served on you. Either way, having as much information about statutory demands as you can help you to go about it the best way you can. 

So, that being said, what happens to a debtor when a stat demand is served?

When a statutory demand is served on you, you will immediately have to decide between three key options, one of which will have to be acted upon within the following 21-day period. 

1. Pay the debt - This option is probably the more obvious of the three, but once you have been served you can simply pay the debt within the next 21 days. This may not work for you, however, as the reason the debt remains outstanding may be due to money problems that prevent you from making payments.
2. Negotiate – Another choice that you have if paying the debt doesn’t work for you is to engage in a negotiation process with your debtor. You can discuss a potential payment plan or an alternative route that works for the two of you alike.
3. Apply to set aside the demand – This option will only work if you believe that the stat demand was made on false/unjust grounds, but you can apply with the court to have the statutory demand set aside.

Consider Using a Debt Collection Agency

Are you a creditor considering engaging a statutory demand as you feel like you have no other choice?

Well, before you proceed with this process, you may wish to consider hiring a debt collection agency to attempt to recover your debt for you!

A debt collector is a professional in the debt collection field, so they may be able to collect your debt with much better success and efficiency than you can as a creditor.

A debt collector may also tell your client that you mean business and will not let go of the debt, causing them to pay up!

Do you have unpaid business invoices or debts to collect with a statutory demand?