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Serving a Statutory Demand: Guidelines for Creditors

A statutory demand is a useful way to pressure a company to pay its debts. However, a creditor using a statutory demand to quickly recover a debt can run into trouble if the legal requirements for service of the statutory demand are not complied with.

In this article we set out how to properly serve a statutory demand and avoid some common problems which can arise.

 

What is a Statutory Demand?

Issuing a statutory demand is a quick and inexpensive way of recovering money owed by corporate debtors.

A creditor can make a statutory demand for payment of a debt as long as there is a debt which is due and payable. The debt also needs to be at least $2000.

Companies which are served with a statutory demand have 21 days to either pay the money owed or to make an application to set aside the statutory demand. If a debtor company fails to comply with a statutory demand or have the demand set aside, a presumption can be made that the debtor company is insolvent and an application made by the creditor to have the debtor company wound up.

 

Serving a Statutory Demand

The Corporations Act 2001 (Cth) sets out the procedure that must be followed when serving a statutory demand. The procedure can be complicated.

If a statutory demand is not properly served a court may find that the service was invalid and set aside the statutory demand.

Under the Corporations Act, all companies must register their office address with ASIC and keep those registered details up to date. A creditor can serve a statutory demand by leaving it at the registered office of the debtor company, sending it by post to that office or delivering a copy of the demand personally to a directory of the company who resides in Australia.

You cannot serve a Statutory Demand on a foreign company as separate procedures are in place to wind up foreign companies.

Under the Commonwealth Evidence Act, a postal article sent by prepaid post to a person at a specified address in Australia is presumed to have been received 4 business days after postage. That timeframe can be accelerated by serving a statutory demand by express post, where the date of delivery can be tracked and proven by Australia Post’s tracking system.

 

Avoiding Pitfalls

A major problem for creditors regarding statutory demands is that if the debtor argues that there is a “genuine dispute” about the debt owed, the statutory demand will be set aside by the court. If the statutory demand is set aside, the creditor may be made to pay costs for the day in court, and this can be very costly.  A “genuine dispute” is a criterion that can be fairly easy to meet, so creditors need to make sure that there is no reason to dispute the debt owed.

Debtor companies often argue that they did not receive the statutory demand on the day it was served, or that they never received the demand in the first place. These issues can be avoided by:

  • undertaking a company search in relation to the debtor company and ensuring that the address on the envelope serving the statutory demand is identical to the address appearing on the ASIC record;
  • hand delivering the demand to the registered office; and/or
  • keeping contemporaneous records of the details of service (something which is made easier if registered post is used).

Where a creditor becomes aware that the company no longer occupies the registered address and the creditor is aware of the new address, then he or she should bring the demand to the notice of the company at that new address.

If the creditor is aware that the company no longer occupies the registered address but does not know where the company has moved, then it is prudent to serve the statutory demand on the company’s director.

 

Conclusion

There is a strict procedure with respect to the service of a statutory demand.

A failure to properly issue a demand can be expensive and a statutory demand may not be enforceable if it is not served in accordance with the relevant procedure.

Debtor companies regularly claim that they did not receive the statutory demand on the day it was served. As such, it is advisable that a statutory demand be served on a company by being personally delivered to the registered offices of the company.

If you or someone you know wants more information or needs help or advice, please contact us on (02) 9274 8820 or email ch@lawbase.com.au.

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