Section 459E of the Corporations Act 2001 (Cth) explains that a creditor may serve a debtor with a statutory demand. A statutory demand is an instrument which sets out the demand and may have an affidavit attached to validate the claim.
The core elements of a statutory demand are as follows:
- The debtor must be a company;
- The debt(s) must be greater than $2000;
- The debt(s) must not be the subject of a genuine dispute;
- The debt(s) must be owed by 1 creditor
- It must be in writing and in the prescribed form;
- It must be signed by or on behalf of the creditor; and
- It must be served on the debtor company.
Once served, the debtor company has 21 days to comply with the demand, to have the demand withdrawn or to have the demand set aside.
If the 21 days elapses and the company has not done any of those options, the company is presumed to be insolvent as per section 459C of the Corporations Act 2001 (Cth).
Once the debtor company is presumed to be insolvent, the creditor can make a winding up application, grounding the application in the presumption which is outlined in section 459C.
If the winding up application is successful, a liquidator will be appointed to wind up the affairs of the debtor company.
A statutory demand is an instrument that has significant impacts for both the debtor and the creditor. It is a great tool that should be used carefully and strategically. It has significant impacts for both Creditor and Debtors.
Key Takeaway
A statutory demand is like a rose. It may look pretty, but it is thorny and should be handled with care.
If you have questions about statutory demands, please contact James Frank at jfrank@franklaw.com.au.
This is not legal advice.
