What is a Statutory Demand? (2023 Guide for new business owners)

If your business has accrued unpaid debts, your creditors may choose to serve you with a statutory demand. A statutory demand is a form of debt collection tactic that, when used, has repercussions for your company. You must take action as soon as possible after receiving a statutory demand, even if you need some time to consult a and consider your options.

What is a statutory demand?

 According to Section 459E of the Corporations Act 2001 (the Act), a statutory demand is a written demand made on a debtor by a creditor. In essence, it’s a method for the creditors to pressure the debtor into paying their unpaid debt. The statutory demand should meet the following requirements:

The minimum debt amount: The debt for which payment is being requested shall be for an amount in excess of two thousand dollars ($2,000) and shall include any interest payable on the date of the request.

 Mandatory form: The statutory demand needs to be in the format that has been approved (Form 509H).

Debt type: The debt must be one that is already past due and payable on the date of the demand. The debt cannot be unliquidated damage or future liabilities, nor may it contain either.

The process for serving statutory demands

 Statutory demands are not presented before a judge. They need only be served in accordance with the procedures established in Section 109X of the Act. If the demand is posted, delivered, left at, or delivered directly to a director of the firm, it will have been served. The registration address of the company can be found by searching the ASIC database.

What are your options if you receive a statutory demand?

 If you receive a statutory demand, the most important thing to remember is that you need to take action immediately. To learn more about your options, it is advisable to consult with insolvency professionals like Debt Free Australia. You can choose one of three options depending on the situation:

Pay the debt: If you are able to, the best course of action is to immediately pay the debt.

Negotiate and agree: Another choice is to negotiate and come to an agreement or repayment plan. The creditor’s willingness to cooperate  and your ability to make repayments will determine if you can reach a deal that works for all parties.

Set Aside: Apply to the court to have the statutory demand set aside as a third option (Section 459G). You must meet the requirements for having it overturned and send in your request within 21 days of receiving the demand.

 Implications of ignoring a statutory demand

 It is strongly advised NOT to ignore a statutory demand if you have received one. If you do so, your business will be presumed insolvent (Section 459C(2)) 21 days after the statutory demand is served (Section 459F). No matter whether your finances and records indicate that you are in fact solvent, this still applies to you. When there is a probability of insolvency, the creditor may ask the court to wind up your business (under 459P). It is even more important to take action immediately if you eventually receive a wind-up notice.

If you are a new business owner and want to learn more about statutory demands, or if you have received one, we highly recommend you seek professional advice.

At Debt Free Australia we will provide impartial advice which will suit your circumstances. Our Registered Liquidator has many years of experience and can provide 24/7 debt advice. Call us now on 1800 462 767.