A company which receives and does not comply with a statutory demand can be placed in liquidation.
Statutory demands can be issued by creditors who are owed a debt of at least $2,000 by a company . A statutory demand must be:
- In the prescribed form (usually an ASIC Form 509H); and
- Accompanied by an affidavit stating that the debt is due and payable.
If a company fails to pay a creditor who has served it with a statutory demand or have the demand set aside by a Court within 21 days of service the company is deemed to be insolvent.
A company which is deemed to be insolvent by virtue of its failure to comply with a statutory demand may be wound up by the Court and a Liquidator appointed to the company.
Statutory Demands Received from the ATO
The Australian Taxation Office (“ATO”) is by far the most common creditor to issue statutory demands to companies each year with the ATO being responsible for filing over 1,000 winding up applications in the 2015 financial year due to companies failure to comply with statutory demands which it had issued.
Service of Statutory Demands
A statutory demand may be served by being posted to a company’s registered office as recorded in the records of the ASIC, delivered to the registered office or handed to a director of a company. The date of service of a statutory demand is important because the company which receives the demand has 21 days from the date of service to file an application in Court to set aside the demand.
What Happens When a Company Receives a Statutory Demand
If a company receives a statutory demand it may:
- Pay the debt claimed in full or seek to contact the creditor and make arrangements to pay the debt by way of a payment plan; or
- Make an application to Court to set aside the statutory demand if it is defective or if there is a genuine dispute in respect of the amount claimed in the demand; or
- Appoint an Administrator or voluntary Liquidator; or
- Do nothing, in which case it is likely that the creditor will apply to Court to have the company wound up and a Liquidator appointed.
A Court can set aside a statutory demand if there is a genuine dispute in respect of the debt which is the subject of the demand or an offsetting claim which if taken into account would reduce the debt to below $2,000.
In order to rely on a genuine dispute or offsetting claim a company will generally need to obtain legal assistance and it may have to make an application to Court to set aside the statutory demand if a creditor will not voluntary withdraw it.
Advice Regarding Options Available
A company which is in financial difficulty which receives a statutory demand (including statutory demands issued by the ATO) should obtain advice regarding the options available to it.
At Pearce & Heers we can provide assistance to the directors of a company which has received a statutory demand including advising and assisting with negotiating a payment arrangement (including payment arrangements with the ATO), negotiating a settlement with the creditor who issued the demand, or in respect of acting as Administrators or Liquidators of the company.