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Home » Bankruptcy & Insolvency » Insolvency » Creditor’s Statutory Demand

Creditor’s Statutory Demand

A Creditor’s Statutory Demand is a formal demand by a creditor to a company under Section 459E of the Corporations Act 2001 (Cth). They are suitable for debts over $2,000, which is not in dispute and are due and payable.

If a company owes you money, and the debt is not disputed, a creditor’s statutory demand can be a useful tool when used correctly. It forces a company to pay the debt within a 21 day period, otherwise, the company will be deemed to be insolvent and could be wound up.

What options do I have after receiving a Statutory Demand?

Generally, a debtor will have three options when receiving a statutory demand which includes:

  1. Paying the debt;
  2. Contacting the creditor to reach a compromise of the debt or enter into a payment plan;
  3. Making an application to the Supreme Court to set aside the statutory demand.

On what grounds can a Statutory Demand be set aside?

The grounds to set aside a statutory demand include:

  1. There is a genuine dispute about the existence or amount of the debt;
  2. The company has an offsetting claim against the creditor. However this generally this only reduces your liability under the statutory demand by the amount of the offsetting claim;
  3. Because of a defect in the demand, a substantial injustice will be caused unless the demand is set aside;
  4. There is some other reason the demand should be set aside;

If you have received a statutory demand….

No matter which way you decide to resolve the statutory demand, you have a strict 21 day period to pay the debt, negotiate a compromise or set aside the demand. The statutory demand should never be ignored or neglected, as a failure to act within the strict 21 day period will mean that your company is deemed to be insolvent. A creditor can then rely on this demand to make an application to the Court to have your company wound up which could be drastic if you are unable to prove that the company is solvent.

If you have been served with a statutory demand, it is imperative that you seek legal advice immediately. After the 21 day period has lapsed, the Court will have no jurisdiction to hear the application to set aside the demand. Your company will then have to prove solvency at a subsequent winding up proceeding, which could prove impossible if your company is having cash flow problems, even if you dispute the underlying debt, the subject of the statutory demand. For more information, read our article with further information on Creditor’s Statutory Demands.

If you have received a statutory demand and need urgent advice on what to do, or would like advice on serving a statutory demand on a company, we invite you to contact Rockliff Snelgrove Lawyers located in Sydney to have a confidential discussion on the options available to you.

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