Statutory Demands: What They Are and Why They Matter
For unpaid company debts, a creditor’s statutory demand can be an effective tool under the Corporations Act. If a debtor company does not pay, secure, or compound the debt within 21 days of service, insolvency may be presumed, allowing a winding up application to follow. When used appropriately, it may encourage prompt payment. However, if issued incorrectly, it can be challenged and result in unnecessary costs.
When a Statutory Demand May Be Appropriate
A statutory demand may be suitable when:
- The debt is due and payable now.
- The amount meets the statutory minimum.
- There is no real dispute about liability.
- The debt can be shown through a judgment, invoices, agreements, or proper accounts.
If there is any genuine dispute about the debt, a statutory demand might not be appropriate. In such cases, it may be better to issue a letter of demand or commence proceedings instead.
How to Respond if You Receive One
It is important to act within 21 days. If the deadline is missed, the presumption of insolvency can be difficult to reverse.
Common grounds for setting aside a demand include:
- A genuine dispute about the debt (supported by evidence).
- An offsetting claim that reduces the debt below the threshold.
- A defect in the demand that causes substantial injustice.
- Other valid reasons, such as abuse of process.
Applications to set aside are filed in the Supreme Court of Victoria. Supporting affidavits should clearly outline any dispute or offsetting claim with proper documents – contracts, correspondence, records, or reconciliations. Bare assertions rarely succeed.
Common Mistakes Seen
- Creditors issuing demands where a dispute exists about workmanship, scope, or cost.
- Debtors delaying action beyond the 21-day limit.
- Incomplete affidavits without supporting evidence.
- Failing to prove proper service when challenged.
Strategy for Creditors
If the debt is clear and provable, a statutory demand may prompt payment within days. It is best to prepare as though litigation may follow – keeping contracts, invoices, and a short chronology of events ready. If there is uncertainty or possible dispute, conventional debt recovery proceedings might be more suitable.
Strategy for Debtors
Seek advice quickly. Identify any dispute or offsetting claim and gather evidence. If the demand is flawed or the debt arguable, consider applying to set it aside. If payment is due but funds are limited, explore settlement or security arrangements before the deadline.
How Scherini Lawyers Can Help
We assist both creditors and debtors across Melbourne. Our team can prepare and serve demands, manage urgent set-aside applications, and represent clients in the Supreme Court to achieve fast, fair results.
