August 5, 2024
It is widely documented in the media that the building and construction industry is doing it tough. It is almost daily news that another major construction company has gone bust and fallen into liquidation.
The Statistics
The current statistics support this – noting total all-industry insolvencies are projected to be over 11,500 in the calendar year 2024, with the insolvency of licenced building companies expected to be in the vicinity of just under 800 companies to the end of 2024. The graphs below reflect this are derived from Australian Securities and Investment Commission statistics.[1]
Long gone are the COVID-19 allowances of minimum debts of $20,000 and 6 months to comply with a statutory demand. Further, the Australian Taxation Office is looking to catch up on legacy tax debts post the COVID-19 years of 2020 to 2022.
You will have heard of the terms such as “Winding up”, “Liquidators appointed” or “Insolvent”. The winding up and the appointment of liquidators are usually a flow-on effect of a failure to comply with a creditor’s statutory demand.
If you are a trading company, you do not want to be served with a creditor’s statutory demand. It is a formal notice requesting payment of a debt that is properly owed to a creditor. In effect, it is a test of the company’s solvency and ability to meet its financial obligations by paying its debts.
A company is insolvent when it is unable to pay its debts as and when the debts fall due, with the policy behind the statutory demand regime being that genuinely insolvent companies should not continue to operate at the risk of incurring more debt to the detriment of creditors. Directors of companies have duties in this regard to not trade whilst insolvent.
Who and When?
A creditors statutory demand is in a form (Form 509H) as prescribed under the Corporations Act (Cth) 2001 (the Act), which is issued pursuant to section 459E of the Act. Strict compliance as to its form, supporting documents (where applicable) and service are required.
Under the Act a creditor can issue a statutory demand where:
1. the debtor is a company;
2. the debt owed is at least $4000;
3. the debt is due and payable; and
4. there is no genuine dispute that such a debt is due and payable.
If you are served with a creditor’s statutory demand, then it is imperative to take steps in relation to the demand, failing which serious consequences to your company may follow and could lead to an end of your business. Time limits strictly apply as to compliance with the demand and those should not be ignored.
A statutory demand requires the debtor company to pay the outstanding debt within 21 days of the date it is validly served upon the debtor company. If there is a dispute as to the debt then positive steps must also be taken within 21 days to seek the assistance of the court to look to set aside the demand.
Similarly, if you are owed money by a company, it may be an appropriate tool with which to a recover a debt that may be owed to you, but not always and sometimes it is not that simple.
Pay up?
Several options may be open to you in dealing with a creditors statutory demand the most obvious option that the demand is met by payment of the amount owed if there is no genuine issue as to the amount demand.
No matter what the circumstances, if your company is served a creditor’s statutory demand you should seek immediate legal assistance and guidance as to what you should do next.
Our next article in this series will explore other options that may be open to you in dealing with a creditor’s statutory demand or indeed issuing a statutory demand against a debtor.
Lamont Project & Construction Lawyers
The Lamont Project & Construction Lawyers team has extensive knowledge in the area of creditors statutory demands in the building, projects and construction space.
If you would like to discuss any matters raised in this article as it relates to your specific circumstances, please contact Lamont Project & Construction Lawyers.
Contact: Peter Lamont or Greg Robson
Email: [email protected] or [email protected]
Phone: (07) 3248 8500
Address: Suite 2, Level 2, 349 Coronation Drive, Milton Qld 4064
Postal Address: PO Box 1133, Milton Qld 4064
[1] Alares, Monthly Credit Risk Insights, 1 July 2024