A statutory demand is a formal request for payment of a debt from a company. It is a vital tool for creditors seeking to recover unpaid debts and is governed by the Corporations Act 2001 (Cth) (the “Act”), primarily under Section 459E. With rising building costs, the use of statutory demands is becoming increasingly relevant. This guide provides a step-by-step overview of the procedure for issuing a statutory demand and enforcing judgment. Please note that this is a general overview and specific legal advice should be sought before beginning the debt recovery process.
- Confirm Debt Owed
Before issuing a statutory demand, you must confirm that the debt meets the following criteria:
- Amount: The debt must be at least $4,000 and due for payment. The debt must not be in dispute, as this can serve as a defence for the debtor company.
- Nature: The debt must be a liquidated sum, meaning it is a specific, ascertainable amount. It can arise from an invoice, judgment, or agreement.
- Typically, having a valid court judgment confirming the debt is strongly recommended.
- Prepare the Statutory Demand
The statutory demand must:
- Be in writing;
- Specify the debt amount;
- State that the debt is due and payable;
- Provide the debtor company with 21 days to comply;
- Be in the prescribed form (Form 509H under the Corporations Regulations); and
- Be supported by an affidavit verifying the debt unless it is based on a judgment debt, where the judgment itself serves as proof.
- Serve the Statutory Demand
The statutory demand must be served on the debtor company at its registered office, either by post or in person. It is crucial to keep evidence of service, such as a signed acknowledgment or receipt. Preparing an Affidavit of Service is also recommended to ensure proper documentation.
- Wait for Compliance (21 Days)
Once served, the debtor company has 21 days to either:
- Pay the debt;
- Reach a settlement with the creditor;
- Apply to the court to set aside the statutory demand, which may be done on grounds such as:
- A genuine dispute about the debt;
- A genuine offsetting claim; or
- A defect in the statutory demand causing substantial injustice.
If the debtor company does not respond within 21 days or apply to set aside the demand, it is presumed insolvent.
Enforcing the Statutory Demand (If No Compliance)
If the company fails to comply with the statutory demand, the creditor may initiate winding-up proceedings.
- Prepare and File a Winding-Up Application
If the debtor company does not satisfy the demand, you can apply to the court to wind up the company on the grounds of insolvency. The application should include:
- A copy of the statutory demand;
- An affidavit confirming non-compliance; and
- Relevant court forms for the winding-up process.
- Serve the Winding-Up Application
Serve the winding-up application on the debtor company at its registered office and notify the Australian Securities and Investments Commission (ASIC). The application must also be advertised according to the Court Rules.
- Court Hearing
At the court hearing, the creditor must demonstrate:
- That the statutory demand was properly issued and served; and
- That the company has failed to comply with the demand.
The court will assess whether to issue a winding-up order based on presumed insolvency.
- Winding-Up Order and Appointment of Liquidator
If the court is satisfied that the company is insolvent, it will issue a winding-up order and appoint a liquidator. The liquidator will assume control of the company’s assets, investigate its affairs, and distribute available assets to creditors.
- Alternative Enforcement Methods
If winding-up proceedings are not suitable or desirable, alternative enforcement methods may be considered, such as:
- Garnishee orders (seizing funds from the debtor’s bank account);
- Writ of execution (seizing assets to satisfy the debt); or
- Charging orders (placing a charge on the debtor’s property).
This guide provides an overview of the procedure for issuing a statutory demand and the steps that may follow if compliance is not met. For tailored legal advice on statutory demands or debt recovery, please contact us.