A creditor's statutory demand ("statutory
demand") is a demand for monies under section 459E of the
Corporations Act. It cannot be used for any other remedy,
such as rectification works, or to put forward an obligation under
a contract. Unless the debt is a judgement debt, a statutory demand
must be accompanied by an affidavit of a relevant person with
knowledge of the debt, who must state that the debt is outstanding,
and that there is no genuine dispute about the debt.
Use of Statutory Demand
A statutory demand must not be used as a general debt collection
tool or to put pressure on a company to pay money. A statutory
demand is only available to a creditor where there is no genuine
dispute over the monies, no genuine offsetting claim and where it
is believed that the company is insolvent.
When issuing statutory demands a creditor must consider to take
legal advice about whether any genuine dispute has arisen.
Generally speaking a dispute will be a genuine dispute if, on an
initial examination of the evidence before it, the court considers
that the company has at least an arguable dispute and should be
permitted to ventilate the dispute in a hearing.
Similarly if the company is a genuine offsetting claim which
exceeds or equals the value of the statutory demand the court will
likely set aside the statutory demand.
What are the consequences for the company and its
A statutory demand requires that a company, within 21 days of
being served with a statutory demand, either:
Files or serves a court application to have the statutory
demand set aside; or
Makes payment of, or secures, the full amount.
The Corporations Act provides that failure to perform one of the
above actions within 21 days will mean the company has committed an
act of insolvency. This time limit is not capable of being
extended. It is therefore extremely important that a record is kept
of the date on which the statutory demand is received and that the
matter is diarised and dealt with quickly.
If the company fails to attend to the above, any creditor can
rely upon the company's act of insolvency to commence an
application for winding up. Generally, the only defence to an
application for winding up is to prove the company is actually
insolvent which requires a very detailed and public display of the
If you have received a statutory demand and you have failed to
comply with it is best to consult with your lawyer to determine
your rights and obligations in relation to the statutory
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Do not depart from the contract terms, or encourage the other party to do so, unless you plan to alter the contract.
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