Statutory Demands and Debt – Section 459E and the Corporation’s Act

by Rochelle Manderson

 

What is a Statutory Demand?
A Statutory demand is a legal device that can be used in certain circumstances where a debtor company owes money. It is governed by s459A of the Corporations Act, and can be a useful option when the amount owing is $2,000.00 or greater. Once served, the debtor company has 21 days to satisfy the debt (or make payment arrangements between the parties) or to make application to the Court to have the demand set aside. If the debtor company fails to make payment, make arrangements to pay the debt, or make application to set aside the demand, a presumption of insolvency will apply. A Statutory Demand must be served on the Company’s registered address, either in person or by registered post.

This blog will briefly examine each aspect of a statutory demand, the requirements pursuant to the legislation, and the effect of the demand for the creditor and debtor companies.

Drafting the document
You should contact your legal practitioner to draft a Statutory Demand, as the Demand must be in the prescribed form as required under the legislation, that being Form 509H. Failure to adhere to these requirements can lead to your Demand being set aside.

A Statutory Demand:

– Must be in writing;
– Must have been signed by the creditor, or signed on their behalf;
– Must state the debtor company’s name and registered address;
– Must state the amount/debt owed; and
– Must specify where in Australia the debt can be paid.

The Statutory Demand must be supported with evidence of the debt, and this must be done in two ways. Supporting evidence must either be in the form of:
– A Court Judgement; or
– An affidavit.

Failure to comply with these requirements will lead to the Demand being set aside.

 

Nature of the debt
The debt must satisfy the minimum statutory requirement, which is currently $2,000.00. The debt must be due and payable, and must not be in dispute. The debt must not be prospective, contingent or unliquidated, and the creditor must be able to put a dollar amount on the debt, so there is certainty. If a company is owed numerous amounts from the same debtor, they can include these amounts in one Statutory Demand.
Service
A Statutory Demand must be served at the registered address of the Company debtor, either by post or personally. A current ASIC company search will have these details. A demand can be served on a company director in some circumstances. Be aware of the State you are serving the Demand in, as this will become important should you take the matter further.

 

What do you do if you have received a Statutory Demand?
If you have received a Statutory Demand, you should never ignore it. You (your company) can make an application to the Court to have the Demand set aside under section 459G(3) of the Corporations Act if any of the requirements under the Corporations Act apply, including:
– The amount is less than the statutory minimum;
– There is a defect in the Demand that would cause substantial injustice for the Court not to set the Demand aside. The importance here is the requirement for the defect to cause a substantial injustice, as without this criteria met the Court may not set aside the demand;
– For ‘some other reason’ under 459J Corporations Act. For example, if a company has commenced proceedings and simultaneously served a Statutory Demand, this would be grounds to set aside the Demand.

Application to set aside a Statutory Demand must be served with accompanying Affidavit stating the grounds in which the Demand should be set aside. If the Demand is not set aside, or there is no application made to do so, the debtor company has 21 days to pay the debt to the creditor company to the creditor company’s satisfaction, which is an objective test.

If the debt is not paid, there is a presumption of insolvency on the debtor company. This presumption will run for three months, during which time the creditor company may commence proceedings for winding up of the debtor company in the relevant State Supreme Court.

 

Going Forward
Companies should engage their legal representation if they are contemplating serving a Statutory Demand on another company, or if they receive a Statutory Demand they wish to challenge. The relevant legislation for this area of law falls under the Corporations Act, and there is a large volume of litigation and case law also relevant. Therefore, you should work with your legal practitioner when dealing with Statutory Demands.