Statutory Demands

Click here to download the Form 509H Statutory Demand

Click here to down the affidavit verifying a Statutory Demand

A company’s failure to comply with a Statutory Demand served upon it under s459E of the Corporations Act 2001 (Cth) results in a presumption of insolvency which can be used by a creditor to support an application to wind up the company in insolvency.

A Statutory Demand, strictly speaking, is the first step in a winding up application but in practice it has become an effective means of collecting a debt from a company.

The test of whether or not a company is insolvent is whether or not it is able to pay its debts as and when they become due and payable; s95 Corporations Act 2001 (Cth).

Valid demands must be in the prescribed form and can only be served in relation to existing debts which exceed the statutory minimum of $2,000, not contingent or prospective debts.

The demand must be in writing, correctly state the debtor’s company name and its registered office, and must be signed by or on behalf of the creditor. It must specify an address for service of notices within the State in which the demand is served.

The statutory demand requires the company to pay the debt or secure or compound the amount owed within 21 days of the date of the demand “to the creditor’s satisfaction”. It is for the Court to determine whether a creditor acted reasonably if a debtor’s proposal is rejected.

Unless it is a judgment debt, the Statutory Demand must be accompanied by an affidavit verifying that the debt is due and payable.

The presumption of insolvency lasts for three months after the demand is served and before the application to wind up is lodged; s459C(2). If an application to wind up is not filed within that three month period, then the demand cannot be relied upon.

Within 21 days of service of a Statutory Demand a company may file and serve an application to set it aside.

An application can only relate to one demand.  If multiple demands have been served, multiple applications to set them aside must be filed and served.  The supporting affidavit must state sufficient grounds for the application; it cannot be supplemented by a late affidavit outside the 21 day period.

A demand will only be set aside if there is a defect in the demand that would cause substantial injustice, if the amount in fact owed is less than the statutory minimum or if there is some other reason why the demand should be set aside; the fact that a company is solvent is not “some other reason” for the purposes of this section.

A demand will be set aside where there is a genuine dispute; one which is bona fide, not spurious, hypothetical, illusory or misconceived.  The Court is not interested in the merits of the alleged dispute, just that there is a serious question to be tried.