So, you have received a Statutory Demand. What should you do?

A Creditor’s Statutory Demand for Payment of Debt is a creditor’s formal, written request requiring a company to pay a debt within the statutory period, currently 21 days.

A Statutory Demand must:

1. Relate to a debt or debts that are due and payable and total at least $4,000;
2. Specify the debt and its amount;
3. Be in writing, in accordance with the prescribed form (a Form 509H);
4. Require compliance with the demand within the statutory period after the demand is served on the company; and
5. Be signed by or on behalf of the creditor.

If a creditor is demanding payment for a debt that is not a judgment debt, the Statutory Demand must also be accompanied by an affidavit (a sworn statement) that verifies the debt is due and payable by the company and complies with the rules.

Once you have been served with a Statutory Demand, there are predominantly four potential courses of action available to you. You can either:

1. Comply with the Statutory Demand and pay the whole amount of the debt;
2. Respond directly to the creditor and negotiate payment of the debt (for example, agree to a payment arrangement with the creditor) or
3. Apply to the Federal Court or Supreme Court within 21 days to have it set aside; or
4. If the company is insolvent, take steps to wind up the company.

If you choose to apply to the Court to set aside the Statutory Demand, you must satisfy the Court that there are grounds to do so.

A Court can set aside a Statutory Demand if:

1. 1. There is a genuine dispute as to the debt,
   2. The company has an offsetting claim,
   3. There is a substantial defect in the demand that will cause substantial injustice unless it is set aside, or
   4. For another reason, for example, improper service of the demand.

If the company has no grounds to have the debt set aside and is unable to pay the debt or does not comply with the Statutory Demand within 21 days, it is presumed that the company is insolvent. Under this presumption, the company may voluntarily apply to the Court to be wound up or, after 21 days, the creditor may apply to the Court seeking an order for the company to be wound up.

Winding up of a company is the legal process of closing a company by liquidating its assets, paying off creditors, and distributing any remaining funds to shareholders. Once complete, the company will no longer exist.

If you need help to determine the best course of action in circumstances where you have received a Statutory Demand, please contact Peter Charatsis, Brenton Priestley or Jonathan Khoury.

The above is general in nature and is not intended to, and does not, constitute professional advice.