Recovery of debts and statutory demands

Cash is king and bad debts can be extremely detrimental to your business.

Statutory demands are a means of recovering your debts in an efficient and effective manner, in certain circumstances.

It is important to note that:

  1. a statutory demand can only be issued against a company, not an individual;
  2. the quantum of the debt must be more than $2,000;
  3. broadly speaking, a sworn affidavit will need to accompany the demand to say, among other things, that there is no genuine dispute about the debt or its existence; and
  4. issuing a statutory demand in the prescribed manner can be complex and things can easily go wrong.

You are entitled to make an application to wind-up the debtor company if the debtor company fails to make payment within 21 days or fails to file an application to set aside the statutory demand.

Having said this, it should be noted that simply filing an application does not mean the demand will be set aside.  The debtor will also need to prove one or more of the following:

  1. that it has a genuine dispute about the amount of the debt or its existence;
  2. that it has an offsetting claim;
  3. the demand is defective in a way that, if allowed to stand, would cause a substantial injustice; or
  4. there is some other reason why the demand should be set aside.

As stated above there are legal technicalities which govern the process of issuing a statutory demand. Accordingly, it is not a mechanism that should be used without seeking appropriate advice.

Conversely, if you are issued with a statutory demand please note that the consequences of an expired statutory demand are also serious.  If you are a recipient, please act immediately – step one should involve contacting your lawyers.  The 21 day period will commence from when the demand is received.  You should ensure that whoever occupies the registered office of your company (if it is not you) is briefed on the importance of immediately bringing to your attention the fact that a statutory demand has been received.

Please contact Fletcher Law for further assistance.