Have you been served a with a statutory demand? Or maybe you’re being proactive? Either way, I am glad you’re here. Statutory demands require speed and precision in order to ensure the best possible outcome for you and your business.

What Is a Statutory Demand?

If you haven’t paid a creditor on time, one way they can try to recover their debt is to serve you with a statutory demand. It’s a written request for their debt to be paid that’s structured in accordance with Section 459E of The Corporations Act 2001 (Corporations Act). Not all written demands are statutory requests, but if so you need to move quickly.

How to Identify a Statutory Demand

Rather than consulting the Corporations Act, you can quickly identify a statutory demand by the following characteristics:

1. Is it on the correct statutory demand form? Form 509H is the only approved document on which a statutory demand can be served.
2. Does it meet the minimum debt amount? The minimum is over $2,000 AUD, although this can include the interest owing at the date served.
3. Does it indicate the type of debt? It cannot be for a debt due later than the date of the demand and must not include prospective liabilities or unliquidated damages.
4. Was it served in the correct manner? Statutory demands don’t get filed with the court, but they must be served in the correct manner. It must be posted to or otherwise delivered to the company’s registered address in accordance with the ASIC database. It can also be delivered personally to a director of the company.

If any of these criteria appear unmet, you might have some room to move. However, it’s always best to seek legal advice before acting. If it looks as though you’ve been served with a statutory demand, you will need to act fast so having an expert identify these criteria quickly is key.

How Long Does a Statutory Demand Last?

A statutory demand is valid for 21 days from the date of service. During this time, the company that receives the demand must either comply with the demand by paying the specified debt or enter into an arrangement with the creditor, or to apply to set aside the demand.

Can a Statutory Demand Be Served by Email?

Yes, this was confirmed by the Federal Court in the case of Bioaction Pty Ltd v Ogborne [2022] FCA 436, which overturned the previous understanding that statutory demands could only be served in person or by post.

To serve a statutory demand by email, the creditor must send the demand to the debtor’s nominated email address. If the debtor does not have a nominated email address, the creditor can send the demand to the debtor’s last known email address.

The email must contain the following information:

• A statement that the demand is a statutory demand under section 459G of the Corporations Act 2001 (Cth)
• The amount of the debt
• A demand that the debtor pay the debt within 21 days of receiving the demand
• A statement that if the debtor does not pay the debt within 21 days, the creditor may commence bankruptcy proceedings against the debtor

If the debtor does not pay the debt within 21 days of receiving the statutory demand, the creditor can commence bankruptcy proceedings against the debtor.

Looks Legitimate? Here Are Your Options

Of course, if your legal counsel determines that the request is invalid you may respond as though this was a non-binding request for payment. If it is a valid statutory demand, you have essentially four options, with four possible outcomes:

1. Ignore the demand. This is not recommended. Your company will be presumed insolvent if the demand is ignored for 21 days. In this case, the creditor can apply to wind up your company, regardless of your actual financial situation.
2. Pay the demand. If you have the ability, this is the quickest method of resolving the matter.
3. Set aside the demand (via the court). This can be done:
   • If the demand is defective in some way, although the court will consider this only if the defect will cause you substantial injustice.
   • iIf there is a genuine dispute about some aspect of the debt. If your dispute is deemed valid by the court, the demand will be set aside and the creditor may be required to pay a costs order.
   • If you have an offsetting claim against the creditor that could offset the debt in part or in whole.
   • Other reasons under Section 459J(1)(b) of the Statutory Demand Corporations Act. This tends to be a scenario in which the creditor is trying to abuse the statutory demand process, but there are other genuine reasons for a demand to be set aside.
4. Negotiate the demand. If the creditor is amenable, you may be able to negotiate a compromise that allows you to pay the debt under more suitable conditions. This is an especially ideal solution if fulfilling the demand will cause problems for your cashflow or your business operations more broadly.

Can’t Pay the Debt? Here’s the Upshot

As you can see, there are a number of options open to you if paying the debt outlined in the demand will be problematic. However, the key to securing your best interest is moving as quickly as possible. You only have 21 days to organize your affairs before the creditor can apply to wind up your business.