Statutory Demand for Payment is a demand for the payment of a debt owed by a company under section 459E of the Corporations Act 2001 (Cth) (“the Corporations Act”). The elements of a statutory demand are outlined below and discussed further in this article. A statutory demand:
- Must be for an amount of liquidated debt or debts which is the more than the statutory minimum, currently $2,000.00;
- If no judgment has been entered, then it must be accompanied by an affidavit that verifies that the debt, or the total of the amounts of the debts, is due and payable; and complies with the rules;
- Or if judgment has been entered, then the statutory demand must attach a copy of the judgment;
- The statutory demand must be served on a company by posting it to the registered office of the company from the current extract with ASIC.
Once the company is deemed to have been served with the statutory demand for payment, it has twenty one (21) days to either:
- Comply with the statutory demand for payment by paying the liquidated debt; or
- Apply to set it aside.
Liquidated Sum of over $2,000.00
Liquidated Debt – A liquidated debt is a specified sum of money owed under the contract for goods and/or services.
Example, an outstanding debt of $2,500.00 under a contract.
Service of the Statutory Demand for Payment
A statutory demand for payment is served when it is it is either posted to the company’s registered office (a current extract from the Australian Securities and Investment Commission (ASIC)), or the statutory demand is served personally on a director of the company living in Australia.
A demand after a judgment must be served with the judgment. A demand prior to judgment must be served with an affidavit in support of the statutory demand.
Setting Aside a Statutory Demand for Payment
If you have been served with a statutory demand for payment without a judgment, and you need to set it aside, there are a number of ways that this can be done, they are:
- If there is a genuine dispute about the existence of the debt, or amount of the debt to which the demand relates;
- If there is irregularity in the demand causing substantial injustice; and/or
- If the debtor(s) have an offsetting claim.
Irregularity in the Demand Causing Substantial Injustice
It is very important to get a professional to draft and serve your statutory demand. If there is an irregularity in the demand; and that irregularity may cause substantial injustice, then the statutory demand may be set-aside.
Genuine Dispute about the Existence or Amount of the Debt to which the Demand Relates
A Court may order that a statutory demand be set aside if there is a genuine dispute about the existence of the debt, or the amount of the debt. In a lot of cases, this can be proven quite easily. The case law on what constitutes “genuine” is not authoritative. However, the Courts have said that a genuine dispute may arise:
in situations which connotes plausible contention requiring further investigation or where a dispute be bona fide and truly exist in fact
Other cases have defined the word genuine to mean:
not spurious, being as represented, real, true, authentic & sincere
If a debtor can raise any genuine dispute, which can be found in fact, the Court may set aside the demand. For example, in the quote phase there was some confusion as to the quantum of the final quote; or a company failed to quote for some labour and it was charged as an extra.
The Debtor(s) Have an Offsetting Claim
Similar to the genuine dispute mentioned above, the Court may make an order in relation to the debtor being able to prove that they have an offsetting claim.
Statutory Minimum – If the offsetting claim brings the claim in the statutory demand below the statutory minimum (currently $2,000.00), then the demand may be set aside.
Variation – If the offsetting claim does not bring the demanded claim below the statutory minimum, then the Court may order a variation of the demanded sum.
What is an Offsetting Claim?
An offsetting claim (“claim”) is any genuine claim that the company has against the creditor by way of counterclaim, set-off or cross-demand. The claim does not have to have a factual nexus to the statutory demand, but can be a claim independent of the demanded sum.
Statutory Demand with a Judgment Debt
If you have been served with a statutory demand with a judgment, then you will need to apply to the Court issuing the judgment to set it aside. Read our article on setting aside a default judgment here.
Before thinking about using a statutory demand it is very important to consider if there is a debt owed and/or whether there could be a genuine dispute about the quantum of the debt or if there is an offsetting claim. The demand is a lot stronger if you have a default judgment before a statutory demand is served.
Advising clients in Relation to Statutory Demand for Payment
There are a number of very serious consequences in relation to failing to advise on the consequences in relation to statutory demand for payment. You should be aware of:
- The company may apply to set aside a statutory demand, and if the company is successful, may be entitled to recover the costs of their application;
- All critical dates must be diarised, bring-up’s put in the calendar, and the client informed; and
- Any costs and timeframes associated with winding-up and liquidation of the company.
Non-compliance with a Statutory Demand for Payment
A company is required to:
- Pay the demanded sum;
- Set up a payment plan with the creditor; or
- Apply to set the demand aside.
If a company does not do any of the above within 21 days then it is presumed to be insolvent. This presumption allows for the creditor to take steps to wind-up the company in insolvency.