A statutory demand is when a creditor is owed a due and payable debt greater than the minimum ($2,000). The creditor would issue a written demand to a company in a specified form along with a supporting affidavit verifying the debt. The company then has 21 days to apply to the Court to have it set aside.
A demand will only be set aside if:
- the amount in fact owed is less than the statutory minimum
- there is a defect in the demand that would cause substantial injustice if the demand is not set aside
- there is some other reason why the demand should be set aside
When creditors should, and should not, issue statutory demands
If you are a director of a company, it is not uncommon that you may be owed money by said company. Should you find yourself in a situation where that relationship begins to breakdown, what are your options for obtaining that outstanding payment?
Issuing a creditor’s statutory demand is not a sure fire method of obtaining your payment.
What are the risks of issuing statutory demand?
Once a company has been issued a statutory demand, the company will go through the documentation and affidavit with a fine-tooth comb, searching for any type of defect that can be used to have the demand set aside. Whether these defects are of merit or not, the creditor would be advised to withdraw the demand and start again, giving the company more time.
It is also important to highlight is that a debtor company could chose to file an application to set aside a statutory demand you have served on them. If successful, you may need to cover their legal costs of the application which can be significant.
There is also the risk of a debtor company not being able to repay the debt. If a demand is received and the company is in financial difficulty, it may be a trigger for that company’s directors to claim insolvency or reconsider their position as directors of the company.
Statutory demands can be an incredibly time-consuming and risky process.
When should you issue a statutory demand?
A creditor’s statutory demand could be a reasonable option for people to take in very straightforward cases of companies that have failed to pay an invoice for goods or services. But you need to have done your homework first – seeking legal advice and ensuring your documentation and affidavit do not have any kind of defects.
If issuing a statutory demand, it’s best to deliver in person and keep a record of all of your engagements and actions.
Have you considered all of your options?
Recovering debts from a company, especially as a director, can be complicated. You should carefully consider what options you have available because it may not be as simple as issuing a statutory demand. Take the time to seek legal advice from a professional before proceeding with any kind of legal action.