What is a Creditor’s Statutory Demand?
A Creditor’s Statutory Demand is a letter of demand issued against a company for the recovery of a debt owed.
When you receive a Creditor’s Statutory Demand it might include a judgement of a court. If the creditor believes your company has no grounds for dispute, it may only include an Affidavit by the creditor and outstanding invoices due or other evidence of the debt.
Do you have to file a Creditor’s Statutory Demand?
If you want to file a Creditor’s Statutory Demand against your debtor, you don’t have to file it with the court. It only has to be served on the debtor. Service is usually done by post to the company’s registered office. Usually you are entitled to assume that your Statutory Demand has been served 4 days after the date on which it was posted. Service can also be by personal service on a director, however this is rare.
How do you respond to a Creditors Statutory Demand?
If you have received a Creditor’s Statutory Demand, you have 21 days from the date you received it to respond to it. You can respond to a Creditor’s Statutory Demand by:
Paying the amount owed.
Negotiating a payment plan or compromise of the debt.
Applying to a Court to have a Creditor’s Statutory Demand set aside.
If you are planning to apply to a court to set a Creditor’s Statutory Demand aside, you would need to prove that:
There is a genuine dispute over the debt claimed.
The debtor company has an offsetting claim against the creditor.
There is a defect in the Creditor’s Statutory Demand and it would be unjust not to set it aside.
The amount claimed is below the statutory minimum (currently $4,000, as at February 2022).
There are some other reasons the Creditor’s Statutory Demand should be set aside.
The courts are very strict in regards to the 21 day deadline and extensions are extremely rare. Make sure you respond to a demand within this time frame!
Can I ignore a statutory demand?
We don’t recommend ignoring a Creditor’s Statutory Demand. If the debt is not paid, or the Creditor’s Statutory Demand set aside, within 21 days of receipt your company is deemed to be insolvent. While it may later be determined that the actual date of insolvency was earlier, this presumption of insolvency enables your creditor to file a winding-up application against the company. The winding-up application is an important step in having a company liquidated, effectively closing it down.
If you ignore a Creditor’s Statutory Demand you run the risk that the creditor will make application to the court to appoint a liquidator to the company. On appointment, the liquidator would take control of the company, and any assets, and your powers as a director would be suspended. In effect, you would lose control and the liquidator would seek to sell any company assets available.