A statutory demand can be a very useful way of compelling payment of a debt by a debtor (if a debt is over $2,000 and is due and payable).
It requires a debtor company to pay a debt it owes within 21 days. If the debtor company fails to pay the debt (or come to a suitable arrangement with the creditor) or make an application to set it aside within that time period, then the company is presumed to be insolvent. Once there is a presumption of insolvency, then it is open to the creditor to commence proceedings to wind up the debtor company.
However, they must be considered carefully, because they can be set aside, and the applying party liable for substantial costs, if:
- the debtor company has an offsetting claim against the creditor, which would reduce the debt below the statutory minimum; or
- there is a genuine dispute about either the amount of the debt or the debt itself.
There is also the risk of a debtor company not being able to repay the debt. If you have concerns regarding a company’s ability to pay, you should make preliminary inquiries about the assets it owns.
To apply for a statutory demand, a Form 508H is used. Ensure the demand:
- is in writing;
- has been signed by you or on your behalf;
- states the debtor’s company name and its registered office. You should obtain a new company search for the debtor company before issuing your statutory demand;
- states the total amount of debt owed; and
- specifies a place in Australia where the debt can be paid. Generally, this is your office or solicitor’s office.
There are two ways you can ‘support’ your statutory demand:
- with a judgment of the Court; or
- an affidavit.
A recent case showed the limits of statutory demands.
The creditor in their application placed an emphasis on construing the contract having regard to commercial sense, implied terms of business efficacy, the sophistication of the developer and the post contractual conduct of the parties consistent with the vendor’s construction of the contract.
In relation to the vendor’s submissions, the Court observed the following in relation to a statutory demand application:
- If you have to rely on such matters to support your interpretation of the contract, then this should be taken as an indication that the low threshold has been satisfied in respect of establishing a genuine dispute.
- This does not detract from the prospect that a court may find such considerations weighty, or even determinative, when ultimately determining the construction of the contract.
- A court will almost certainly not have regard to such matters when examining a contract in the limited exercise it is required to undertake on a statutory demand application.
As you can see, there are many subtleties in such a claim. Legal advice is essential.