What is a Statutory Demand?

On 05.30.11, In Company Law, by Ben Waldeck

A statutory demand is a letter sent to a company demanding payment of a debt. It is important to note that statutory demands should not be used as a method of debt collection. Rather, statutory demands

Statutory Demand Basics.

This is not legal advice. The information contained in this article cannot be relied on for its accuracy. You should not rely on this information because legal advice can vary substantially depending on your individual circumstances. Nothing replaces proper legal advice. If you would like to contact a lawyer, please contact the Queensland Law Society.

A statutory demand is a letter that is sent from a person demanding payment of a debt from a company. A statutory demand cannot be sent to an individual – it must be sent to a company. The value of the debt must be at least $2,000. The Corporations Act, which is a Commonwealth statute governs statutory demands.

The Coporations Act says that you have 21 days to respond to a statutory demand. If you don’t, there can be big problems for you to overcome. For example, the Court may presume that the Company that has been issued a statutory demand, is insolvent. This really means that if you receive a statutory demand you can:

1. Pay the demand

This is an obvious remedy. Of course if you owe the money it is a good idea to pay it. You may wish to read the other options if you want to oppose the demand.

2. Apply to the Court to set the statutory demand aside

This must be done within 21 days. Generally speaking, you will need to convince the court of the following points to set aside a statutory demand aside.

> Genuine dispute as to the debt

The whole reason behind a statutory demand is that there is a pre-agreed amount due as a result of a previous agreement. It is important to remember that there is no need to prove the entire case when applying to set the demand aside. Generally, there is a fairly low bar in order to prove that there is a dispute. However, remember that there has to be some obvious reason that there is a dispute.

> Genuine offsetting claim

If there is an claim of offset then there is a reason for the court to set aside the demand. Obviously, the offsetting claim must be bona fide and a genuine one.

> Defect in the demand

There is no doubt that that the form of the demand should follow the rules of the Corporations Act.

> Defect in the accompanying affidavit

You can apply to set aside the statutory demand.

3. Do nothing

As you can imagine, this is is not a wise choice. The worst case scenario is that the person issuing the statutory demand can apply for orders from the Court to wind up the Company. Which means that the company may be forced to be deregistered.