We at AH2 Legal often get queries from clients about bad debts that are owed by companies in the course of business dealings. Clients often get frustrated when having to deal with collecting slow debts from other businesses that fail to adequately address their debts in a timely manner.

A potential option (subject to conditions) when dealing with companies that owe you money is to issue a statutory demand for the debt owed.  A statutory demand can be made to a company by a person who is owed a debt, or more than one debt, totalling more than the statutory minimum, which is currently set at $2,000.

If a company owes you more than $2,000, you may serve it with a statutory demand pursuant to section 459E of the Corporations Act. You must serve the statutory demand with a supporting affidavit if you have not already obtained a judgment. It is vital to get the formalities of the statutory demand correct to avoid your statutory demand being overturned in Court on a technicality.

Under the Corporations Act, a statutory demand must:

  • Specify the amount of the debt;
  • Require the company to pay the amount of the debt or secure or compound that amount to the creditor’s reasonable satisfaction within 21 days after the statutory demand is served on the company;
  • Be in writing;
  • Be in the prescribed form;
  • Be signed by or on behalf of the creditor; and
  • Be accompanied by an affidavit that verifies that the debt is due and payable by the company.

Once served with the statutory demand, the company that owes you money then has a period of 21 days to either:

  • pay the debt; or
  • apply to the Supreme Court or Federal (Circuit) Court to have your demand set aside.

If the company fails to act, then it may risk being deemed insolvent as a creditor may then apply to the Court for the company to be wound up and a liquidator appointed. The company can no longer dispute the merits of your claim once this happens.

Liquidation is the corporate equivalent of death. Whilst some companies might defend debt collection proceedings if only for delay, very few companies are prepared to risk their very existence for the sake of non-payment.

Statutory demands are relatively inexpensive. Unlike court writs and summonses, they are not publicly reported – so the threat of unwanted publicity from a writ or summons remains potent. Only the Supreme Court or the Federal Court can set them aside – so there is no incentive for the debtor to incur the costs involved unless there is a genuine dispute.

Of course, statutory demands are not always the solution. You must be sure that there is no reasonable defence to your claim because if so, then you might end up having to pay for the costs of setting your statutory demand aside in Court.

A statutory demand can be a useful tool in collecting debts from companies if you use them correctly. However, it is important to seek legal advice from a lawyer that knows what he or she is doing in this area of law in order to maximise your chances of obtaining a return of your debt without any negative consequences against yourself.