In the conduct of any business, and even more so in times of economic difficulty, the collection of debts by a business is of paramount importance, according to TERRY MORGAN.
There are, depending upon the circumstances of the debt owed, a number of different statutory processes which may assist you to collect a debt, or may assist a creditor to collect a debt from you, including the issue of a Creditor’s Statutory Demand.
If you are seeking to recover a debt from a debtor of your business where the debtor is a company or you conduct your business as a company and a creditor of your business is endeavouring to collect a debt from you, one of the statutory processes available is the issue of a Creditor’s Statutory Demand pursuant to the Corporations Act 2001 (Cth) (“the Act”).
The Act provides a mechanism pursuant to which a creditor, in circumstances where a debtor is a company, may issue a Creditor’s Statutory Demand against the debtor company.
The Creditor’s Statutory Demand is served upon the registered office of the Debtor. In this regard care is to be exercised as some businesses have their registered office as the office of their accountant.
Therefore it is often advisable to ensure that the Creditor’s Statutory Demand is served both up on the registered office and the place of business of the Debtor company.
When a Creditor’s Statutory Demand is served upon a company that demand requires the debtor company to either:
- Pay the amount claimed; or
- Compromise the debt to the satisfaction of the Creditor
within twenty-one (21) days of the date the Creditor’s Statutory Demand is served.
The 21 day period is of critical importance. If a debtor company does not comply with a Creditor’s Statutory Demand within the 21 day period referred to in the Creditor’s Statutory Demand and/or apply to have the Creditor’s Statutory Demand set aside by the Supreme Court of NSW or the Federal Court of Australia then in any future proceedings by the Creditor who served the Creditor’s Statutory Demand, seeking that the debtor company be placed in liquidation, the court is entitled to assume that the debtor company is insolvent.
If a company of which you are a director or secretary has received a Creditor’s Statutory Demand then, as indicated above, the 21 day period expressed in the Creditor’s Statutory Demand is of critical importance.
Should you wish to endeavor to have the Creditor’s Statutory Demand set aside in order that the Statutory Demand cannot be relied on in any future proceedings where such proceedings are seeking an order to have the company of which you are a director or secretary placed in liquidation the application to set aside the Creditor’s Statutory Demand must be commenced within the 21 day period after the Creditor’s Statutory Demand is served upon the company.
The requirement to commence an application to set aside the Creditor’s Statutory Demand within the 21 day period after the service of the Creditor’s Statutory Demand means that the proceedings to set aside the Demand must not only be commenced in court but also any Affidavits in Support of that Application must be served upon the Creditor who has issued the Creditor’s Statutory Demand within the same 21 day time period.
There are several bases upon which a Creditor’s Statutory Demand may be set aside by the Court.
Some are:
- The Statutory Demand may be defective in the formal sense. The form of the demand is prescribed by the regulations to the Act and must be followed strictly. A non-compliance with the form of the demand may result in a Court setting aside the Creditor’s Statutory Demand;
- The Demand has not been properly served upon the Company;
- The Debt which is the subject of the Statutory Demand must be due and payable. In general terms only Creditors who are entitled to immediate payment can serve a Statutory Demand. The debt supporting a Creditor’s Statutory Demand can be as little as Two Thousand Dollars ($2,000.00); or
- There is a genuine dispute as to whether the amount claimed in the Creditor’s Statutory Demand is in fact payable by the Debtor company to the Creditor.
The requirement that an application to set aside the Creditor’s Statutory Demand must be made within the 21 day period following service of the Creditor’s Statutory Demand can be made more difficult in circumstances where a company has, as its registered office, the address of its accountant or other advisors. In such circumstances it is not unusual for there to be a delay, sometimes of several days or even longer between the time that the Creditor’s Statutory Demand is served upon the Debtor company’s financial advisor and the existence of the Creditor’s Statutory Demand being communicated to the Debtor company.
The effect of non-compliance with a Creditor’s Statutory Demand or failing to have it set aside results in a Court being required to assume that the company is insolvent in any proceeding seeking the liquidation of the company. Therefore, it is vitally important that you act quickly if a company of which you are a director or a secretary is served with a Creditor’s Statutory Demand.
