Debt Collection
A creditors Statutory Demand
A useful debt recovery tool is that of a creditors statutory demand (statutory demand). A statutory demand is a formal demand made by a creditor of a debtor company for the payment of a debt owed. A statutory demand is issued under section 459E of the Corporations Act (2001) (Cth) (‘Act’). The demand for the debt made must be for at least the statutory minimum which is since 1 July 2021, is permanently $4,000.00.
Typically, once a company has been served with a statutory demand, the company has 21 days (Statutory Period) to either make payment of the debt, negotiate and enter an agreement with its creditor to pay the debt or apply to the Court to have the statutory demand set aside. In the event a company fails to respond to a statutory demand within the Statutory Period, it will be presumed to be insolvent, and the creditor may apply to the court seeking that the company be wound up.
It is vitally important that a debtor who has been served with a statutory demand acts quickly. Once the Statutory Period has expired the options available to a debtor to dispute or offset the debt are significantly reduced. It is imperative that the debtor takes action within the Statutory Period. If you have been served with a statutory demand it is imperative to obtain legal advice as a matter of urgency. (Contact Us)
Setting aside a statutory demand
In the event a debtor company wishes to set aside the statutory demand, there are a number of options available to them. Upon being served with a statutory demand, it is worth evaluating whether a company has valid cause to make an application to set it aside. Section 459E of the Act prescribes the form and requirements a statutory demand is required to meet.
Section 459G of the Act stipulates that a debtor company may apply to the Court to seek an order to set aside a statutory demand which was served on it, within the Statutory Period. The Act further specifies instances upon which a debtor can rely to set aside a statutory demand which include:
- Formal defects with the statutory demand;
- Genuine dispute as to the existence or amount of the debt the statutory demand relates to;
- An offsetting claim.
Statutory Minimum
From 1 July 2021, the Federal Government has raised the minimum debt required to serve a statutory demand from $2,000 to $4,000 in accordance with the Corporations Amendment (Statutory Minimum) Regulations 2021 (Cth). The threshold applies to all statutory demands served on or after 1 July 2021.
Formal defects
As described above, section 459E of the Act outlines the form the statutory demand must meet. A Court may set aside a statutory demand if it fails to meet these requirements outlined in section 459E of the Act and as a result the defects of the demand cause substantial injustice to the company upon which the demand was served. Defects in statutory demands may include but are not limited to, issues with service of the statutory demand or defects as to the form of the demand itself.
Genuine Dispute as to existence or amount
Section 459G of the Act allows for a statutory demand to be set aside by the Court if it can be established by the debtor company that there is a genuine dispute between the parties as to the existence of the debt. The interpretation of “genuine dispute” is hotly contested, however, was described in Re Morris Catering (Australia) Pty Limited (1993) 11 ACSR 601 at 605, as a “bona fide dispute that truly exists in fact where the grounds are real and not spurious, hypothetical, illusory or misconceived…”. The Federal Court reiterated this in the matter of Aussie Hoist Property Pty Ltd v Mulqueen [2018] FCA 1493 in which Justice Griffiths stated that a mere assertion that a debt is denied is insufficient and admissible evidence needs to be provided to the Court to establish that a dispute is genuine by the debtor company.
Offsetting claim
A debtor company may challenge a statutory demand on the basis that it has an offsetting claim against the creditor who served the statutory demand on the debtor company. This claim must be a genuine claim which seeks to counter the debt claimed by the creditor who issued the statutory demand. A counter claim may only be made in respect of a debt due and payable by the creditor who issued the statutory demand. A company which claims the existence of an offsetting claim must take steps to quantify the claim, otherwise the Court may dismiss the application: Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 2) (1994) 12 ACLC 490. Section 459H only encompasses offsetting claims for monetary consequences, such as debts and damages.
Statutory demands are not to be utilised as a vehicle for debt recovery, and the Courts have made it clear that they do not look favourably on creditors that seek to use them as such. Accordingly, creditors should be careful in issuing statutory demands to ensure that a demand is issued for proper purpose and in compliance with the Act. In any event, if your company is the recipient of a statutory demand, then time is of the essence, and you should contact our office as soon as possible to arrange a consultation. As insolvency specialists, Roser Lawyers understands the gravity and urgency of responding to a statutory demand and are willing to assist you with any insolvency matters that may arise for you and your company. (Enforcement)