Legalease Lawyers simplifies clients understanding of the Statutory Demand process to enable them to understand how it works and how effective it can be to aid collecting overdue debt.
In Australia, the definition of a Statutory Demand is a legal demand made by a creditor to a company seeking a debt owed to be paid under Section 459E of the Corporations Act 2001.
Statutory demands need to be undertaken carefully to ensure their validity.
The demand requires the debtor company to pay a debt within 21 days once received.
Failure to pay will give the creditor the legal right to seek a court order to wind up the debtor company.
6 considerations before issuing a Statutory Demand
- The debt must be due and payable. If you have 7-day payment term, that 7-day term must have expired before a Demand can be issued.
- The debtor must not have disputed the amount. A Stat Demand cannot be issued if the debtor disputes the debt.
- The amount of the debt must be more than $4,000.00. If the amount is less then you cannot issue a Demand.
- The Demand must be in writing and drafted and served by a solicitor. A Demand is a legal document which must be in proper form. The information must be checked for accuracy by a Solicitor.
- Service of the Demand must be done by post to the registered office address of the company. The Demand need not be served in person. It is preferable that the debtor is continually contacted over the 21-day period to ensure a copy of the Statutory Demand has been received.
- The Demand always demands the debtor company pay within a 21-day timeframe. The Statutory Demand must specify the date within which the debtor must pay. The date is also important because, failure of the debtor to pay by the indicated date will give the creditor the cause of action to seek a court order to wind up their company.
Why Issue a Statutory Demand?
A Statutory Demand is often used as a “test” to determine the solvency or insolvency of a company. When used correctly, it can ensure a quick response and payment from a debtor who has otherwise been avoiding contact and (or) made repeated promises for payment, but has failed to.
How Does the Statutory Demand Work in Debt Collection?
As part of the debt collection process, the Statutory Demand works in the following manner:
- Creditor issues a Statutory Demand.
- The debtor will pay the outstanding amount on or before the 21 days indicated in the Statutory Demand. Or, the debtor disputes the amount within 21 days of their receipt of the Stat Demand. The Debtor may also apply to set aside the Stat Demand. To do so they must have a genuine dispute.
- If the debtor applies to set aside a Statutory Demand, the merits of the dispute must be reviewed. If there is a genuine dispute that must be worked through, we will consent to the Demand being set aside while we work through the issues raised.
- Should the debtor not pay within the required time frame, the creditor may apply to put the debtor company into liquidation.
Please contact Legalease Lawyers on 0402 121 124 should you wish to discuss further.
