I’ve just received a Creditor’s Statutory Demand. What now?
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If you have received a creditor’s statutory demand, the person or company who sent it to you is threatening to wind up your company because your company owes them money. Winding up your company means it will be placed into liquidation.
This is a very serious matter requiring your immediate attention.
If you do not respond to the creditor’s statutory demand within the time required in the document, your company may be presumed to be insolvent. That presumption of insolvency can be relied upon by the person or company who issued the demand to have your company wound up and placed into liquidation.
It is therefore imperative that you urgently seek professional advice if you have received a creditor’s statutory demand.
You should contact a lawyer whether or not you believe you owe the debt, and whether or not you can afford to pay the amount stated in the creditor’s statutory demand, because an experienced insolvency lawyer (as you will see below) may be able to set aside, dispute or otherwise invalidate the creditor’s statutory demand on technical legal grounds.
Information regarding creditor’s statutory demands
Creditor’s statutory demands are issued in Australia under the Corporations Act 2001. The form of the demand required by the regulations to the Act is a Form 509H – Creditor’s Statutory Demand for Payment of Debt.
Before 25 March 2020, a creditor’s statutory demand could be issued for a minimum amount owing of $2,000. However, since the advent of COVID-19, the minimum amount has increased to $20,000.
Serving a creditor’s statutory demand on a company under the Corporations Act is usually the first step a creditor takes towards having a company who owes them money wound up and placed into liquidation. Service is usually effected by sending the creditor’s statutory demand by prepaid post to the registered office of the company. Service is deemed to have occurred on the fourth working day after it is posted unless there is evidence to the contrary.
A company receiving a creditor’s statutory demand usually has 21 days to respond. However, the advent of COVID-19 now means that a company has six months to respond to a creditor’s statutory demand if it was issued on or from 25 March 2020 until 25 September 2020.
As the law currently stands, if a company is served with a creditor’s statutory demand after 25 September 2020 it will only have 21 days to respond. However, depending upon the ongoing effects of COVID-19, this date may be extended.
Failing to adequately respond to a valid creditor’s statutory demand within the relevant time means that the company will be presumed to be insolvent under the Corporations Act. This has far reaching consequences. It enables the creditor to file an application in the Supreme Court of Queensland or the Federal Court of Australia to have the company wound up in insolvency.
Once that process is commenced, it can only be halted by satisfying the demand (and those of any supporting creditors owed money), proving that the company is solvent, or by defeating the application on technical grounds.
If the application to have the company wound up is successful and the company is placed into liquidation, a registered liquidator will be appointed by the Court to conclude or ‘wind up’ the affairs of the company.
The liquidator will close the company’s business, sell its assets, and distribute any remaining funds to its creditors after payment of the liquidator’s fees and expenses. The liquidator will then de-register the company with the Australian Securities and Investments Commission (ASIC) meaning it will cease to be a legal entity.
The liquidator is also required to investigate the management of the company by its directors and report the findings to ASIC. That can include the directors allowing the company to trade while it was insolvent and any other breaches of the Corporations Act which may give rise to potential offences.
Because failure to respond to a creditor’s statutory demand has such serious consequences for you and your company, the creditor issuing it must have strictly complied with all legal formalities under the Corporations Act for issuing and serving the demand. Some of these considerations are set out below.
How was the creditor’s statutory demand served?
How you received the creditor’s statutory demand is extremely important. You should make a note of how and when you received it and keep copies of all written communications you received with it.
Are the creditor’s details correct?
Do you know the person or company who has sent you the creditor’s statutory demand? Compare the details on the demand with previous documents you have received from them. Do they make sense or is there some confusion?
Are your company’s details correct?
Has the person or company who sent you the creditor’s statutory demand correctly described your company’s name, ACN and registered address in the demand? This is very important; particularly in relation to your company’s ACN. However, a typographical error in your company’s address can also be significant. A winding up application was recently defeated for that reason in Victoria (Mills Oakley (a partnership) v Asset HQ Australia Pty Ltd  VSC 98).
Were you aware there was a judgment against your company?
Does the creditor’s statutory demand refer to a judgment against your company? If so, a copy of the judgment may be attached. It will have a Court heading on it describing the Court it was issued from, a claim number, and the parties concerned with that claim. Are you familiar with those Court proceedings, or is that the first time you became aware of them? You may be able to set aside or appeal the Court judgment.
Does your company owe the creditor money?
If you are not familiar with the Court proceedings or judgment, check your records to see if you or your company have ever had any contact with the person or company who issued the creditor’s statutory demand. Situations have arisen where the wrong company has been sued for a debt because they had a similar name to the actual debtor.
If you or your company have dealt with the creditor before, according to your records and understanding, did your company still owe them any money? If there was a balance owing to the creditor, was there another reason you had not paid it? Did they owe your company a similar or larger amount of money? Was there a genuine dispute over the debt? Both these considerations can be used to set aside the creditor’s statutory demand.
Is the amount claimed overstated?
Check your records to confirm whether the amount being claimed by the creditor in the creditor’s statutory demand is the same as the balance you thought was owing. Has the creditor claimed in excess of what you thought was owing?
You may have these options
As you can see, there are many important considerations to be examined before responding to a creditor’s statutory demand. Investigating these considerations and gathering information to identify any errors in the demand takes time. We therefore urge you to consider those matters as soon as possible as they will determine your options to respond to the creditor’s statutory demand.
In broad terms, your options are:
If the information in the creditor’s statutory demand is completely accurate, the first two options are the appropriate one’s for you to consider.
If your company does not currently have the financial means to pay the full amount claimed, and the creditor will not agree to an informal arrangement to settle that amount, there are formal options available under the Corporations Act that can achieve that outcome without risking your company going into liquidation.
Alternatively, if the creditor’s statutory demand is not accurate, you may be able to request that it be withdrawn by the creditor or apply to set it aside on these grounds:
- Your company has applied to set aside the judgment upon which it is founded
- Enforcement of the judgment upon which the demand was founded had been stayed or suspended at the time the creditor’s statutory demand was issued or served
- There is a defect in the creditor’s statutory demand and the defect will cause substantial injustice to your company
- The amount claimed in the demand is overstated
- Your company has a claim against the creditor exceeding the amount demanded
- There is a genuine dispute about the debt being claimed in the creditor’s statutory demand
This is not an exhaustive list. Insolvency is a technical and complex area of law and you should seriously consider obtaining legal advice if you believe that there may be grounds to set aside the creditor’s statutory demand your company has received.
Setting aside the creditor’s statutory demand will prevent your company from being presumed to be insolvent and the creditor who issued the demand relying on that presumption to take steps to have your company wound up.
Contact Gibbs Wright Litigation Lawyers
If you have recently received a creditor’s statutory demand and require assistance to urgently assess its ramifications for your company, one of our expert team of solicitors will be happy to help you. Contact Gibbs Wright Litigation Lawyers today for a free and confidential initial consultation to explore your options and legal rights.
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