August 12, 2024
Last week in Part 1 to this series we looked at the basic notion of creditor’s statutory demands as a means to seeking recovery of a debt that is genuinely owed.
Basis for a Valid Demand
You will recall that under the Corporations Act (Cth) 2001 (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.
Time to comply with the statutory demand commences upon valid service of the demand on the debtor company. The time to comply is within a strict 21-day period from the date the demand is served.
Failure to comply with a demand (or take steps to set the demand aside), will result in a presumption of insolvency under the Act and as such is a ground for an application to the court to wind-up the company in insolvency and have a liquidator appointed to the affairs of the company.
If there is no dispute as to the debt then in order to comply, payment must be made to the creditor and to the satisfaction of the creditor within the 21- day timeframe.
What If?
What if however, when confronted with delivery of a creditor’s statutory demand that you are of the belief that there is a genuine dispute as to the debt and/ or that you have an offsetting claim against the amounts claimed by the creditor?
The Act contemplates these scenarios and provides the debtor pursuant to section 459G of the Act with the avenue of applying to the court to have the creditor’s statutory demand duly set aside. Clearly, approaching the court on any such application is an expensive exercise. An initial step would be to ask the creditor to withdraw the statutory demand and have the creditor do so, in writing. If the creditor persists and you believe you have proper grounds to set aside the demand, then you are compelled to apply to the court, and so as to avoid any presumption of insolvency.
On any application to the court, it must be accompanied by an affidavit in support of the application. An affidavit is a written form of evidence filed with the court and which exhibits documents that may be relevant to matters in issue in the application.
The affidavit must support that application in that it must accurately and specifically set out those matters that would justify an order of the court to set aside the demand. It would not be sufficient if vague and general denial is made that a debt it not due and payable. It should be drafted with such sufficient particularity, and ideally the affidavit be prepared by a lawyer so as to avoid any failures to meet the requirements of setting aside the demand.
Section 459G of the Act allows for an application to set aside the demand by the company and it must be filed and served on the creditor company along with an affidavit in support of the application strictly within 21 days after being served with the creditors statutory demand. If you fall at the this first requirement your application will not be valid, and a presumption of insolvency will arise. The 21-day time period has been strictly interpreted to mean 21 days and not more.
Grounds For Application
The onus is on the debtor company (the applicant) to demonstrate why the demand should be set aside.
Generally, the grounds to apply to set aside a demand can be summarised as follows:
- there is genuine dispute as to the existence of the asserted debt (section 459H of the Act); and/or
- there is an offsetting claim such that (section 459H of the Act); or
- there is a defect in the statutory demand and/ or the associated statutory demand affidavit resulting in a substantial injustice (section 459J (1) (a) of the Act); or
- some other reason (section 459J (1) (b) of the Act).
The next part in this series will look in more detail as to these various grounds to set aside the demand.
A warning to creditors, however, is that a creditor’s statutory demand (in the absence of judgment debt of the court) should not be issued if there is likely to be any contention as to a sum of money owed. It should not be used as a debt collecting exercise or a form of coercion to pay if there is some expected dispute as to the debt. You, as creditor, run the risk of being met with a court application and orders against you for costs.
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.
The contents of this article is for information purposes only; it does not discuss every important topic or matter of law, and it is not to be relied upon as legal advice. Specialist advice should be sought regarding your specific circumstances.
Contact: Peter Lamont or Greg Robson
Email: [email protected] or [email protected]
Phone: (07) 3248 8500
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