What is a Statutory Demand?
This is an initiating process in Winding up a Company. A Statutory Demand is a demand made under 459E of the Corporations Act 2001 (Cth). This document is not issued by the Court. A Statutory Demand requires that the Company pay a specified sum of money within 21 days from the date of the delivery of the demand.
Failure to comply with a Statutory Demand or apply to the Court to set it aside, will result in the company being “deemed” to be insolvent and provide the basis for an application to be made to the Court for the winding up of the company.
What is the effect of a Statutory Demand?
If the Company does not make an application to the court within 21 days to set aside the Statutory Demand, the creditor may start proceedings to wind up the company.
Can a Statutory Demand be set aside? How can it be set aside?
Once a Statutory Demand has been sent to the company, they then have 21 days from receiving the demand to make an application to the court under section 459G to set it aside. In order for the court to set aside the Statutory Demand, one of the following must be satisfied:
- There is a “genuine dispute” about the existence or amount of the debt – this is the most common ground for setting aside a Statutory Demand. Note however, that the threshold for demonstrating a genuine dispute is low. This means that the company may be able to easily set aside a Statutory Demand.
- The company has an offsetting claim against the creditor – if the company has a genuine claim against you by way of counterclaim, set-off or cross-demand, the courts may set the Statutory Demand aside. Note that the counterclaim, set-off or cross-demand does not have to arise out of the same transaction or circumstances that the Statutory Demand is related to.
- If there is a defect in the demand, a substantial injustice will occur unless the demand is set aside; or
- There is some other reason the demand should be set aside.
Note that if the Company intends to make an application to the court to set aside the Statutory Demand they may provide you with the opportunity to withdraw the Statutory Demand. This however, does not always happen and the Company may choose to make an application to the court without providing you this opportunity. Note however that this is very rare as it is proper practice to send a letter to the party serving the Statutory Demand requesting that they withdraw it before they go to court to set it aside.
How do I wind up a company?
If the Company has failed to comply with the Statutory Demand, an application can be made to the court to wind the company up.
If you have any questions regarding Creditor’s Statutory Demands, you can contact CTI Lawyers on (02) 9744 1099 or email your enquiry to [email protected].