If your business is owed money by another company, a creditor’s statutory demand can be one of the most effective ways to get paid. It is a formal notice under section 459E of the Corporations Act 2001 (Cth) that puts real pressure on a debtor company. If the demand is ignored, the company can be presumed insolvent and wound up. Chasing an unpaid debt is stressful, but creditors have some strong options. If you are trying to recover a company debt in Victoria, it pays to understand how a statutory demand works, when to use it, and when a different approach is safer.
What is a creditor’s statutory demand?
A statutory demand is a formal written notice requiring a company to pay a debt. It can only be used against companies, not individuals, and the debt must be at least the statutory minimum, currently $4,000. The demand is usually issued on Form 509H and, unless the debt is already a judgment debt, it must be supported by an affidavit verifying the amount owed. It then has to be served correctly on the company’s registered office. Once that happens, the clock starts.
When can you issue a statutory demand?
A statutory demand suits a clear, undisputed debt. The debt should be:
- due and payable now, not a future or contingent amount;
- at least $4,000; and
- not genuinely disputed by the debtor.
In other words, it works best for something like unpaid invoices where the goods or services have been delivered and the amount is not in question.
Should you send a letter of demand first?
In most cases, yes. A well-drafted letter of demand sets out the debt, the amount, any interest, and a short but reasonable time to pay. It is often enough to prompt payment on its own, and it shows you acted reasonably if the matter later reaches court. A statutory demand is a serious step, so it is worth giving the debtor one clear, final chance to pay first.
What happens after the demand is served?
The company has 21 days to do one of three things: pay the debt, reach an agreement with you, or apply to the court to set the demand aside. This 21-day period is strict and cannot be extended.
If the company does nothing, it is presumed to be insolvent. That presumption lets you apply to wind the company up, but you must file the winding-up application within three months of the failure to comply. In other words, a statutory demand that is ignored can become the first step toward liquidation, which is exactly why it carries so much weight.
When is a statutory demand the wrong tool?
A statutory demand is an insolvency tool, not a debt-collection tool for disputed debts. If the company can show a genuine dispute about the debt, or a genuine offsetting claim against you, it can apply under section 459H of the Corporations Act to set the demand aside. If that happens, you may be ordered to pay the company’s legal costs, an expensive result for what should have been a straightforward recovery. Where a debt is truly in dispute, ordinary court proceedings (in the Magistrates’, County or Supreme Court, depending on the amount) are usually the safer path.
What if you receive a statutory demand?
Sometimes the position is reversed. If your own company is served with a statutory demand, do not ignore it. You have just 21 days to pay, negotiate, or apply to set it aside, and missing that deadline can leave your company presumed insolvent. Get advice straight away.
How we can help
Whether you are chasing a debtor or defending a demand, we can help you act quickly and protect your position. We regularly assist Victorian businesses with letters of demand, statutory demands, debt recovery and winding-up applications, and we can advise on the right strategy for your circumstances. A client chasing money is in a much stronger position than one who leaves it too late. The sooner you act, the better your chances of recovery.
For advice on recovering a company debt or responding to a statutory demand, please fill out our online enquiry form or call our office on (03) 9629 2211 to speak to an experienced litigation lawyer today.
Frequently Asked Questions
How much does a debt have to be to issue a statutory demand?
At least $4,000, the statutory minimum under the Corporations Act 2001 (Cth). The debt must also be due and payable and not genuinely disputed.
How long does a company have to respond to a statutory demand?
21 days from the date it is served. In that time the company must pay, reach an agreement, or apply to set the demand aside. The deadline is strict and cannot be extended.
What happens if a company ignores a statutory demand?
It is presumed to be insolvent, and the creditor can apply to wind it up. The winding-up application must be filed within three months of the failure to comply.
This article is general information only and not legal advice. For advice about your situation, contact Hendersons Legal on (03) 9629 2211 or via our enquiry form.
