Explainer: What is a Statutory Demand?

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There are different ways to commence debt recovery in New South Wales.

The most common starting point is a letter of demand, which does not need to be in a particular form but is usually sent by either a creditor or their lawyer demanding payment of a sum of money within a particular time period and often setting out the basis on which the creditor says they need to be paid.

Common examples include services that someone has provided but not been paid for, goods delivered but not paid for and other breaches of commercial and/or contractual relationships.

A Statutory Demand is a document that a creditor can issue to a company requiring the company to pay a debt within 21 days. Typically, issuing a Statutory Demand is the first step in winding up a company.

If a Statutory Demand is not complied with or set aside within 21 days of issue, the company will be presumed insolvent, and creditors may commence legal proceedings in the Supreme Court of New South Wales to wind the company up.

To issue a Statutory Demand, the debt must be over $2,000 and must be due and payable. There are some technical requirements set out in the Corporations Act with respect to Statutory Demands including that you cannot issue a Statutory Demand if the debt is a prospective debt (that is not due and payable now) and/or unliquidated. In other words, you must set out clearly the dollar value of the debt (so, it follows that

Statutory Demand cannot be used for things like claims for damages or other sums of money that cannot usually be quantified). A letter of demand, followed by the issuing of Court proceedings for debt recovery will usually be required in these circumstances.

A Statutory Demand must comply with the Corporations Act including that it must:

• be in writing;
• be signed by the creditor or on the creditor’s behalf;
• state the debtor company’s name and its registered office ;
• state the total amount of the debt;
• specify where the debt can be paid.

And you should also consider supporting your Statutory Demand with an Affidavit setting out the circumstances giving rise to said demand.

It is important that you make sure your debt is legitimate and falls within the definition of a debt pursuant to the Corporations Act before you issue a Statutory Demand.

They are serious documents and if you issue one and the debtor company subsequently makes an application to set the Statutory Demand aside and are successful, they may be able to recover their legal costs from you on the basis that the Statutory Demand should never have been issued.

There are a number of reasons why a Court might set aside a Statutory Demand including if the debtor company asserts some sort of offsetting claim against a creditor which would reduce the debt to below the statutory minimum of $2,000 or if there is a genuine dispute about either the amount of the debt or whether there is in fact a debt in existence.

So, while a Statutory Demand might seem like a quick way to put pressure on a company to pay an invoice or something of that nature, you should seek legal advice and carefully consider your position before issuing one.

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