A statutory demand is a demand sent to a company under
section 459E of the Corporations Act 2001 (Cth) that relates to a debt of
the company that is due and payable. The demand requires the
company to pay the amount of the debt within 21 days after the
demand is served on the company.
What happens if the debtor company does not comply with the
If a debtor company does not pay the debt stated in the demand,
or does not apply to the court to set aside the demand within 21
days, the debtor company has failed to comply with the demand. The
effect of the failure to make payment is that the debtor company is
presumed to be unable to pay its debts when they fall due and
payable, meaning that the debtor company is insolvent.
What happens if the debtor company applies to set aside the
The debtor company can defend the application, or rebut the
presumption, by applying to set aside the statutory demand. There
are a number of valid bases on which a debtor company might defend
the statutory demand, such as:
if there is a genuine dispute about the
if the debtor company has an offsetting
if the demand was defective
some other relevant reason
If the debtor company is successful, the court may order the
creditor to pay the costs of the debtor company for wasting its
time and money. Therefore, it is not wise to serve a statutory
demand on a company without first investigating the debt, liaising
with the company and sending letters of demand. If there are no
grounds for setting the judgment aside, and there is suspicion of
insolvency, then a statutory demand may be a suitable course of
The debtor company has failed to comply – so I get repaid
the debt now, right?
Not quite. If a debtor company has failed to comply with the
statutory demand, or has applied to set aside the demand and
failed, the creditor can then apply to the court to have the debtor
company wound up. A liquidator will likely be appointed, and the
creditor may receive payment of the outstanding debt in full, in
part or not at all, depending on the debtor company's financial
position. The court will not order payment of the debt upon a
winding up application. That is for the liquidation process, after
the winding up order has been made.
That is, a statutory demand provides no guarantee to a creditor
that it will recover the original debt, even if successful.
Take steps to have a debt paid before issuing a statutory
If a debtor company is solvent, using a statutory demand as a
means of forcing the company to pay a debt is an abuse of process.
The proper course of action is to bring an action for the debt in
the Local, District or Supreme Court, depending on the amount of
Consider the risks and possible costs before you make a
In a recent matter I acted in, a client seeking to get a debt
paid wanted to threaten the debtor company with a statutory demand.
To "put a gun to their head", as they put it.
However, the degree of uncertainty of the outcome and the
expense of making a statutory demand, particularly where there was
no suspicion of insolvency, and where there was a genuine dispute
about the tax invoice and amount owing, was too high to risk.
As I explained to the client, the statutory demand could be set
aside, they could end up with an expensive legal bill and they
risked having to pay the debtor's legal costs as well.
These cases provide some guidance as to how the courts have approached the assessment of damages in nervous shock claims.
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