Have you been served with a statutory demand?

Being served with a statutory demand can be confronting. It is one of the most powerful debt recovery tools available to creditors, and ignoring it can place a company at real risk of being wound up.
Below is a straightforward guide to what a statutory demand is, why it matters, and the steps you can take.

What exactly is a statutory demand?

A statutory demand is a formal notice sent by a creditor to a company requiring payment of a specific debt. The company has 21 days to:

pay the amount in full,
come to an agreement with the creditor, or
apply to the Court to have the demand set aside.

If the company does none of these, the law presumes the company is insolvent. The creditor can then ask the Court to wind up the company and appoint a liquidator.

This is why a statutory demand should never be ignored.

When can a creditor issue a statutory demand?

A creditor may issue a demand where:

the debtor is a registered company;
the debt totals at least $4,000; and
the amount is due, payable and clearly defined.

The debt must be an actual, quantifiable sum; not an estimate, not a future claim, and not a disputed amount.

Statutory demands should also not be used to force payment in situations where liability is genuinely contested. Doing so can expose the issuing party to costs or adverse findings.

What must the demand look like?

To be valid, the document must:

follow the approved Form 509H,
be signed by the creditor or their lawyer,
state the debtor company’s correct registered office,
set out the exact amount claimed, and
nominate an Australian address where payment can be made.

If the debt is the result of a Court judgment, no extra documents are needed.
If it is not a judgment debt, the demand must be supported by an affidavit confirming the debt is owed and not genuinely in dispute.

How does service occur?

A statutory demand must be properly served. This usually means:

posting or delivering it to the company’s registered office, or
personal service on an Australian-based director.

Without proper service, the 21-day clock does not start.

What should a company do after receiving a statutory demand?

Time is critical. Within 21 days, the company must either:

1. Pay the debt, or negotiate payment terms,

2. Apply to the Court to set the demand aside, or

3. Resolve the matter in writing.

If nothing is done, the creditor may commence winding-up proceedings on the basis of presumed insolvency.

Act Fast if you think you have grounds to dispute a statutory demand

Statutory demands are very technical and if you think there is a problem with the form or if you think there is a genuine dispute in relation to whether or not the debt is owed, you should speak to a lawyer to discuss what options are available to you.

At Baker Love Lawyers, we assist both creditors issuing statutory demands and companies seeking to challenge or resolve them.