What Happens After You Receive a Statutory Demand as a Director of a Company?

Following on from the effects of the COVID Pandemic and now record high inflation, it is common for many small businesses to be behind on their bills, whether it be to suppliers or to the landlord.

Any party who is owed money by the company, also known as creditors, have the option to issue a statutory demand to the debtor company for payment. The threshold of outstanding debt required for such a demand to be issued was discussed in one of our previous articles: “$10,000 or $4,000 – A Toss of the Coin”.

As the business owner or company director, what happens once you receive a statutory demand from one of your creditors?

The contents of the statutory demand

A statutory demand is a notice served to a Company pursuant section 459E of the Corporations Act 2001 (Cth). The contents of such a demand must be in writing in the prescribed form and signed by the creditor (or on behalf of the creditor) and will include:

• The nature of the debt or debts;
• The amount of the debt or debts;
• The total amount of all the debts (if there is more than one category);
• An affidavit that verifies the above information (if it is not a judgement debt determined by the courts); and
• A requirement to pay the above debt or debts by a specified date (determined by the statutory period which is either the standard 21 days or a prescribed period that is longer than 21 days).

Given that there is only a short period of time address the statutory demand, any actions to be taken must be taken as soon as possible.

During the period after receiving the statutory demand and before the specified deadline

After you received a statutory demand, you can still resolve the issue through the following methods:

• If there are sufficient funds, the simplest solution would be to pay the debt demanded;
• Negotiate with the creditor who issued the demand to withdraw the demand and come to alternate payment arrangements;
• If there is a genuine dispute surrounding the debt, you can apply to court to have the demand set aside; and
• Appoint an insolvency practitioner to act as Liquidator or Voluntary Administrator of the Company.

After the specified deadline passes

Once the deadline specified in the statutory demand passes and the debt is not repaid, the Company is presumed to be insolvent and the creditor can file an application to court to have the Company wound up (i.e. placed into Liquidation). This application must be filed within three (3) months of the date the Company is presumed to be insolvent, that is within three (3) months of the expiry of the twenty-one (21) day period to comply with the statutory demand (or the expiry of any extend time for compliance).

How we can help

If you, or your clients, receive a Statutory Demand for a debt that cannot be paid or genuinely contested, Vincents’ Registered Liquidators can discuss with your options to try to save your business or have it wound down in an orderly way.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to your circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.