Pay up or we’ll wind you up – issuing a statutory demand

You may have cause to issue one, or you might be on the receiving end. This brief article by Justin Courtney gives an introduction to the ins and outs of statutory demands.

What is a stat demand?

A statutory demand is a device provided for in the Corporations Act which allows a creditor to demand payment of a debt and allege that the reason the debt has not been paid is because the company is insolvent. They can only be used against companies and not individuals.

When should you use a stat demand?

You should use a stat demand when:

  • you are owed more than $2,000 (you cannot issue a stat demand for less than this);
  • you consider that the debtor company may be insolvent;
  • there is no dispute about the debt; and
  • you are prepared to go ahead and wind up the company.

You should not use a stat demand:

  • to attempt to recover debts from a company that is clearly solvent; or
  • when there is a known dispute about the debt.

A note on disputes

A debtor company can apply to have the stat demand set aside if it has a dispute about the debt. It should be noted here that it does not take much to establish that there is a dispute!

The dispute only has to be arguable, not ultimately successful or even that persuasive. The judge hearing an application to set aside a stat demand on the basis that there is a dispute will not decide the merits of the dispute. If the debtor company succeeds in having the demand set aside, it is likely you will have an order made against you for the payment of the costs of the application.

How do I issue a stat demand?

You might have guessed that it’s not as easy as just sending off a quick letter demanding payment.

A stat demand must be drafted in accordance with the Corporations Act. If is not drafted carefully, contains inaccuracies, inconsistencies or is not served properly on the debtor company, then that company may apply to set aside the demand notice and you may be liable for their court costs.

In short – get some expert advice before doing this.

So why would I issue one?

A stat demand gives the debtor company only 21 days to respond, meaning that it must either satisfy the demand or take out, and serve, an application to have the demand set aside.

So if there is no dispute about the debt, you may recover the outstanding debt much more quickly and cheaply than through litigation.

What happens then?

If a debtor does not respond within the 21 day period, you may then issue an application for a winding up order.

If that application is successful, the debtor company will be wound up and a liquidator appointed.  However, only if there are any assets of the company available to the liquidator for distribution to creditors will you be likely to then recover your debt and your costs.

What happens if I am served with a statutory demand?

If you find yourself on the receiving end of a stat demand:

Do not panic (but consider it because this is serious); and

Seek legal help immediately as the clock is ticking (for 21 days). On day 22 your options are limited to paying the full amount of the debt or risk being wound up. No argument will help you at this point.