In our experience, whilst most directors know the nature of
a Statutory Demand (that is, a demand for a payment), the
consequences of failing to deal with a Statutory Demand
expediently are not always understood.
What is a "Statutory Demand"?
A Creditor's Statutory Demand for Payment of Debt or
"statutory demand", is a document demanding payment
of a debt, issued to a company, pursuant to the Corporations
Act 2001 (Commonwealth) ("the Act").
The purpose of statutory demand is to provide a scheme for
the quick resolution of the issue of a company's solvency
without incurring the delay normally associated with disputes
about debts (unless those disputes are raised promptly).
Contents of a Statutory Demand
A statutory demand is addressed to the debtor company and
put simply, demands the repayment of a debt (which must exceed
$2,000) with 21 days of service of the statutory demand.
Statutory demands are usually served at the registered
office of the company, however, they can be served on directors
of the debtor company.
An affidavit is usually served with the statutory demand.
The affidavit verifies the contents of the statutory
Who can issue a statutory demand?
Generally, statutory demands can be issued by any creditor
of a debtor company with a debt exceeding $2,000.
What should I do if my company is served with a
Act quickly. Any action to defeat the statutory demand, must
occur within the 21 days after service. This cannot be stressed
There are four options for a debtor company after being
served with a statutory demand:
(a) Pay the debt within the 21 days.
(b) The debtor company may commence court proceedings within
the 21 day period of the statutory demand and seek to set aside
the statutory demand on one or more of the following
there is a genuine dispute about the debt claimed in the
the debtor company has an offset in claims;
there is a defect in the statutory demand that causes
substantial injustice to the company; or
there is some other reason why the demand should be set
(d) Ignore it. If the debtor company ignores the statutory
demand and does nothing in the 21 days after service, under the
Act, the debtor company is presumed to be insolvent for a
period of 3 months after the expiry of the statutory demand.
The issuing party may proceed to seek to have the debtor
company placed in liquidation.
Generally, to prevent the company being placed in
liquidation at this stage, the debtor company must to prove it
Consequences of failing to comply with a statutory
demand (or ignoring it!)
The main consequence of failure to comply with a statutory
demand, is usually, the issuing party seeking to have the
debtor company placed in liquidation and a liquidator be
Whilst the main ground for defeating such Court action is to
show the company is solvent and while such Court proceedings
can be defended or settled, there can be commercial
consequences for a debtor company should court proceedings
The presentation of the originating process to the court is
recorded by the Australian Investment and Securities Commission
("ASIC"). The fact that the court proceedings seeking
to wind up the company have been filed will appear on a
company's search on the ASIC register. Usually, the filing
of such proceedings will constitute an "event of
default" under security documents (such as loan and
mortgage documents) held by the debtor company. Unless the
issue is dealt with quickly or the financiers fully informed, a
secured lender may call on the mortgage and/or crystallise a
charge and appoint a receiver over the assets of the
Further, suppliers may refuse the debtor company credit or
seek a change in terms of trade.
The effects of an expired statutory demand can have serious
commercial consequences for a company and may ultimately cause
the company to be placed in liquidation.
When determining if a DOCA is to be terminated, public interest can, and often will, outweigh any benefit to creditors.
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