What is a creditor’s statutory demand and could it affect your company?
When a creditor (natural person, partnership or a corporation) is owed $2,000 or more and has attempted to collect their debt without success then they may resort to issuing what is called a creditor’s statutory demand under section 459E of the Corporations Act 2001 (Cth).
Unless the debt is a judgment debt, the demand must be accompanied by an affidavit verifying that the debt is due and payable by the company.
Has your company been served with a creditor’s statutory demand (“Demand”)?
Generally, the Company that has been served with a Demand has two options. Option 1 is to pay the debt in full within 21 days of the service of the Demand. Secondly, the Company can make an application to the Court to have the Demand set aside under section 459G of the Corporations Act 2001 (Cth). The application to set aside the Demand must be made within 21 days of the service of the Demand.
Potential consequences that may arise over the failure to comply with the demand
A company is presumed insolvent if it fails to pay the creditor or have the demand set aside by making an application to the Court within the prescribed timeframe.
The creditor can rely on the presumption of insolvency and apply to the Court for an order that the Company be wound up in insolvency under section 459A of the Corporations Act 2001 (Cth).
Pursuant to section 459C of the Corporations Act 2001 (Cth), the presumption of insolvency only lasts for a period of three (3) months after the service of the Demand. Therefore, any application for the winding up of a Company must be filed within those three months.
In short, the procedure of issuing and serving a creditor’s statutory demand is one of the quickest methods for the creditors to collect their debts quickly.
Changes to the statutory demand regime as a result of COVID-19
As a result of the COVID-19 pandemic and the devastating impacts it continues to have on the businesses, the Government of Australia has passed the Coronavirus Economic Response Package Omnibus Act 2020 (Cth).
The changes (discussed below) came into effect on 25 March 2020 and will be in effect for a period of six months.
The minimum statutory debt threshold for issuing a creditor’s statutory demand has been increased to $20,000 (previously $2,000);
Further, the period for a Company that has been served with a creditor’s statutory demand has now six (6) months to respond (i.e. either pay up or make an application to set aside the statutory demand) to any demand (previously 21 days).
The information contained in this article is general in nature, does not take into account your personal situation and does not constitute legal advice. The matters referred to in this article are of a general nature only and should not be relied upon in place of appropriate professional legal advice.
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