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Has your company been served with a Statutory Demand?

If your company has been served with a creditors statutory demand for payment you must act with urgency, as allowing it to expire can cause irrevocable harm.

The most simple way that a company can be wound up and liquidators appointed is when an application is brought after the expiry of a statutory demand.  The statutory demand allows 21 days from service within which the recipient company must satisfy the creditor of the amount contained therein, or otherwise bring an application before the Court to have the demand set aside on grounds of the demand being defective or that there is a genuine dispute in relation to the debt.

Should the company fail to comply with the demand, by making full payment of the demand within 21 days or by applying to have the demand set aside, a company is deemed to be insolvent and a creditor may make an application to the Court to wind up the company.  No further evidence is required to prove insolvency.

For a company that may be asset rich but suffering from a temporary lack of liquidity, 21 days to comply with a statutory demand will often not be enough time in which to realise some of its assets and to make good on the demand.

Companies can attempt to oppose a winding up application on the basis that the company is in fact solvent.  This is a complex application to bring before the Court as it involves, amongst other things, overturning the presumption of insolvency.  A more effective approach is to deal with creditor who issued the statutory demand within the 21 day period to ensure that the presumption of insolvency does not arise at all.

If a company has been served with a demand and it does not consider that it owes the debt or that there is an irregularity in the document it may apply to the Court have the demand set aside.  However, this application must be made within 21 days and there is a large volume of case law that indicates the Court treats the 21 days in the strictest of terms.

Alternatively, if your company does owe the debt raised in the statutory demand, it is often beneficial to seek advice with a view to formally approaching the creditor’s legal representatives on a ‘without prejudice’ basis to attempt to negotiate payment terms, allowing for further time outside of the 21 day limit.

If your company has been served with a statutory demand, contact our office for advice in relation to the most appropriate response for your circumstances.

Paul Rojas
Partner

supervising partners

Paul Rojas

Partner
Office 07 3009 8444
Email p.rojas@rclaw.com.au

lawyers

Elena Mastyuk

Senior Associate
Office 07 3009 8444
Email e.mastyuk@rclaw.com.au