The temporary insolvency protections relating to statutory demands, which apply to all companies, are due to end on 31 December 2020.

In the normal course, under section 459E of the Corporations Act, a creditor can issue a statutory demand against a company demanding payment of a debt of at least $2,000 (the Statutory Minimum) that is currently due and payable. The company then has 21 days after being served with the statutory demand to pay the demanded amount, reach an agreement with the creditor about the debt to the creditor's satisfaction, or to apply to a relevant court to have the statutory demand set aside.

If a company fails to respond to the statutory demand within 21 days, it will be presumed to be insolvent and the creditor can make an application to a court for the company to be wound up in insolvency and a liquidator to be appointed to the company.

In order to reduce the instances of companies being liquidated, the Coronavirus Economic Response Package Omnibus Act 2020 made the following changes to the statutory demand process:

(1) Increase the Statutory Minimum from $2,000 to $20,000 - meaning that a creditor must have a much larger debt owing to it by the company before it can issue a statutory demand
(2) Extend the time for a company to respond to a statutory demand from 21 days to six months-meaning that the company will have a longer period of time to deal with the statutory demand, reducing the pressure on the company for a quick response.

As noted above, on 31 December 2020 the temporary relief measures for statutory demands are set to end. This means if a company is served with a statutory demand for $2,000 or more after that time, i.e. on 1 January 2021 onwards, it will only 21 days to respond to the statutory demand, i.e. by paying the debt or applying to the court to set aside the statutory demand on the basis that, for example, the company has a genuine dispute as to the debt.

Accordingly, if you need to serve a statutory demand, or you receive one, the time to comply will from 1 January 2021 be much shorter than it has recently been. If you need to serve a demand, or you have been served with one, please seek advice on the new arrangements.

For further information please contact:

Marc Baddams,Partner
Phone: +61 2 9233 5544

Sean Greenwood, Senior Associate
Phone: +61 2 9777 8315

Esther Khoo, Associate
Phone: +61 2 9233 5544

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.