STATUTORY DEMANDS “MY INVOICES HAVE NOT BEEN PAID, WHAT CAN I DO NOW?"
For many businesses, cash flow is king. In that respect, this article aims at informing the reader about statutory demands and their commerciality.
COVID-19 AND THE RETURN OF THE STATUTORY DEMAND
Contrary to popular belief during COVID-19, the statutory demand did not go anywhere. The introduction of the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) offered debtor companies some protections over the last 12 or so months that otherwise would not have existed but for the impact of COVID-19. For example, if a creditor issued a statutory demand under section 459E of the Corporations Act 2001 (Cth) the debt needed to be more than $20,000 (instead of $2,000) and the deadline to repay the debt was increased to 6 months (instead of 21 days).
For small business this was not ideal as many debts were incapable of being included in statutory demands as the statutory minimum was increased to debts over $20,000 and because they also needed to wait 6 months to demand payment as opposed to 21 days. If your business needed cashflow and invoices paid, this option was no so appealing as it normally would be….
The good news is that statutory demands are back to normal, and we are already seeing an increase in statutory demands being issued keeping debtor companies accountable……
Can you issue a statutory demand?
If you are owed a debt by a company, you may be entitled to issue a statutory demand, but you will need to ensure that:
(a) The debt MUST be over $4,000;
(b) The debts MUST be due and owing;
(c) The statutory demand MUST be supported by an affidavit in support of the statutory demand;
(d) The statutory demand MUST be in the prescribed for, being the Form 509H;
(e) The debtor AND creditor must be correctly identified (i.e., particularising their ABN/ ACN’s);
(f) The demand MUST demand payment within 21 days;
(g) The debt MUST be correctly identified; and
(h) The creditor MUST sign the statutory demand.
Get it right! Don’t have just have a crack!
There have been many cases where creditors’ have seen their statutory demands set aside because they were defective… The court will and may take the view that defective statutory demands can cause a “substantial injustice” to occur if it is allowed to remain on foot. If this occurs, you may have to pay the debtors legal costs in applying to set aside the statutory demand as well as your own.
For example, not including the right ABN/ ACN, including the wrong address for service, getting the debt incorrect etc. can all result in the statutory demand being set aside. On that basis, we recommend that you seek expert legal advice to ensure you get it right!
Presumption of Insolvency
The first thing to acknowledge is that statutory demands are not to be used as debt recovery tools. The purpose of a statutory demand is to demand payment in the period stated in the demand (21 days); and, if the debtor company fails to pay the demand in time, the court will presume that the company is insolvent. It is this presumption of insolvency, which gives the creditor the driving seat in respect of winding up applications as the debtor will have the burden of proving that is solvent, or it may be wound up.
If a court presumes that a debtor company is insolvent (arising out of the non-payment of the statutory demand) a subsequent winding up application may very well be successful, and a liquidator may be appointed. If this occurs, any debts owing to creditors’ will typically be paid in order of priority from the liquidated assets of the debtor company. It is important to note that whatever funds are recovered from the liquidation will be used to pay all the creditors in their order of priority from whatever is leftover (if anything is left over that is).
Rational of Debtor Company
Statutory demands would ordinarily be taken very seriously by debtor companies, especially if they intend to continue trading. Consequently, it is not uncommon for the statutory demand amount to be paid or for the parties to enter into a payment plan so that the debtor company can continue to trade… In saying that, the statutory demand process is not a debt recovery tool, but the bi-product is that it is not uncommon for debtors to pay their debts…
Commercial Benefits of Statutory Demands
The statutory demand process is relatively quick in comparison to commencing proceedings in the courts (i.e., a claim and statement of claim). In our experience, statutory demands can also save litigants time and money as opposed to other legal avenues hence their commercial appeal to creditors.
Example Court Hearing Timeframes – Statutory Demand
A creditor who has issued a statutory demand has 3 months to file the winding up application upon the expiry of the 21-day period stated in the statutory demand. Following this, the court will try to hear the matter within 6 months. In our experience, we have seen matters listed for a hearing within a couple of weeks, if not months. This is of course presuming that the statutory demand is not going to be defended.
Moving Forward
This article serves as a very brief overview of what a statutory demand is and how they can have some commercial benefits as opposed to other legal avenues. If you are considering issuing a statutory demand, the reality is this:
(a) It will cost you money;
(b) It is a commercial decision only you can make;
(c) You should seek legal advice in respect of your circumstances;
(d) Statutory demands and their supporting material are technical points of law and need to be correct;
(e) You need to be able to show that the debt is due and owing to you; and
(f) You need to be prepared to commence a winding-up application should the statutory demand not be paid within 21-days.
Catherine Wallace of Wallace Law Group can assist with issuing statutory demands and commencing winding up proceedings. Please contact either of them at catherine@wallaceweir.com.au or by calling 1300 011 123.
Please note that this article is written as an informative piece and that you must not take the contents of this article as legal advice. Wallace Law Group accepts no liability from your reliance on this article.