The Best Legal Guide to Statutory Demands in Australia

June 4, 2022

Statutory Demand

Reading time: 5 mins

Statutory demands are a powerful legal tool under Australian corporate law, often used by creditors to recover debts from companies. However, their effectiveness lies in strict compliance with the legal framework and procedures.

In this comprehensive guide, our Australian contract lawyer will explore:

what statutory demands are
how they work, and
what businesses need to know when issuing or responding to one

Key Takeaways

Statutory demands are governed by the Corporations Act 2001 (Cth) and require strict adherence to legal requirements.
A statutory demand must specify a debt of at least $4,000, be in writing, and comply with prescribed forms.
Failure to comply with a statutory demand within 21 days creates a presumption of insolvency, which can lead to winding-up proceedings.
Companies can contest statutory demands on grounds such as genuine disputes, offsetting claims, or procedural defects.
Acting promptly is critical—both for creditors issuing demands and companies responding to them.

What is a Statutory Demand?

A statutory demand is a formal, written request issued by a creditor to a company, requiring payment of a debt that is due and payable. Governed by section 459E of the Corporations Act 2001 (Cth), it is a key mechanism for debt recovery in Australia.

Key Features of a Statutory Demand

The key features of a statutory demand are:

the debt must be at least $4,000
the debtor company has 21 days to comply or apply to set aside the demand
the demand must use Form 509H and meet all statutory requirements

When Should You Use a Statutory Demand?

Before issuing a statutory demand, consider whether it is the most appropriate method for recovering the debt. A statutory demand is suitable when:

the debt is liquidated (a specific dollar amount).
the debt is due and payable (not contingent or prospective)
there is no genuine dispute over the debt

If these conditions are not met, alternative debt recovery methods may be more effective. This may include issuing a letter of demand.

How to Issue a Statutory Demand

Steps to Follow

Ensure the debt meets the minimum threshold and is due and payable
Prepare the demand using Form 509H and include all required details, such as the debtor company’s name, registered office, and the total debt amount
Attach either a court judgment or an affidavit verifying the debt
Deliver the original statutory demand to the company’s registered office or a director in person

Important Considerations

The place specified for payment must be in the same State or Territory as the debtor company’s registered office
Ensure compliance with the Service and Execution of Process Act for interstate service

How to Respond to a Statutory Demand

If your company receives a statutory demand, you have 21 days to:

comply with the demand by paying the debt or negotiate with the creditor
apply to set aside the demand by filing an application under section 459G of the Corporations Act if there are valid grounds to do so

Grounds for Setting Aside a Statutory Demand

identify the disagreement over the existence or amount of the debt (section 459H(1)(a))
offset the claim by submitting a counterclaim or set-off that equals or exceeds the debt (section 459H(1)(b))
identify defects in the demand because of procedural flaws causing substantial injustice (section 459J(1)(a))
identify any other valid reason (section 459J(1)(b))

Consequences of Non-Compliance

Failure to comply with a statutory demand within 21 days results in a presumption of insolvency under the Corporations Act. This presumption allows creditors to apply for a court order to wind up the company.

Key risks for debtors include:

liquidation proceedings may be initiated
damage to business reputation and relationships with creditors
potential loss of control over company assets

Frequently Asked Questions (FAQs)

What happens if a statutory demand is defective?

A defective statutory demand can be set aside by the court if the defect causes substantial injustice. Common defects include misstatements of amounts or procedural irregularities.

Can a statutory demand be withdrawn?

Yes, a statutory demand can be withdrawn within 21 days of service. However, withdrawing it after the debtor has applied to set it aside may result in liability for the debtor’s legal costs.

What is a “genuine dispute” in the context of statutory demands?

A genuine dispute arises when there is a serious question about the existence or amount of the debt. The court assesses whether there is a “serious question to be tried.

Can the 21-day timeframe be extended?

No, the 21-day period is absolute and cannot be extended by the court. It is crucial to act promptly within this timeframe.

What are the risks of issuing a statutory demand?

If the debtor successfully sets aside the demand, you may be ordered to pay their legal costs. Additionally, if the debtor company is insolvent, you may recover little or nothing after liquidation.

About the Author

Farrah Motley

Director of Prosper Law. Farrah founded Prosper online law firm in 2021. She wanted to create a better way of doing legal work and a better experience for customers of legal services.

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