A statutory demand is a serious legal notice. It is not a routine request for payment, and should not be ignored or procrastinated over. Companies failing to respond to a statutory demand within a fixed prescribed timeframe may face winding-up proceedings.

A statutory demand is a formal demand for payment issued under section 459E of the Corporations Act 2001 (Cth). It can be served in instances in which a company is alleged to owe $4,000 or more that is overdue and payable.

Once a statutory demand has been served, the respondent company has 21 days to take action. This timeframe is fixed in law and cannot be extended by a court. Ignoring a statutory demand, or failing to comply with it within the 21-day window, creates a legal presumption of insolvency.

Within the statutory 21-day period, the company must either pay the debt in full, reach an agreed written arrangement with the creditor, or apply to the court to have the statutory demand set aside.

A company may have grounds, in certain circumstances, to apply to have a statutory demand set aside. For example:

  • If there is a genuine dispute as to the existence or amount of the debt;
  • If the company has a counterclaim or offsetting claim; or
  • If there is a defect in the statutory demand that would cause substantial injustice.

A statutory demand does not automatically contain a defect simply because the company disputes the existence or amount of the debt. This further underlines the urgency to respond if such a notice is received.

Further, the 21-day timeframe cannot be extended even if there are grounds to set the statutory demand aside, so immediate action is essential whenever a statutory demand has been served.

If a statutory demand is not satisfied or successfully challenged within 21 days, the respondent company is legally presumed to be insolvent. This allows the creditor issuing the statutory demand to commence winding-up proceedings.

Statutory demands are technical documents governed by strict procedural requirements. A statutory demand should never be ignored. Prompt action and early professional advice are essential to protect the company and avoid the risk of insolvency proceedings. Rankin Business Lawyers can provide on-point legal advice and guidance to companies receiving statutory demands.

Ming Yip
Lawyer