A statutory demand is a useful way to pressure a company to pay its debts. However, a
creditor using a statutory demand to quickly recover a debt can run into trouble if the
legal requirements for service of the statutory demand are not complied with.
In this article we set out how to properly serve a statutory demand and avoid some
common problems which can arise.
What is a Statutory Demand?
A statutory demand is a quick and inexpensive way of recovering undisputed money
owed by corporate debtors.
A creditor can make a statutory demand for payment of a debt as long as there is a debt
which is due and payable.
Companies served with a statutory demand have 21 days to either pay the money owed
or to make an application to set aside the statutory demand. If a debtor company fails to
comply with a statutory demand or have the demand set aside, a presumption is made
that the debtor company is insolvent and an application can be made to have the debtor
company wound up.
Serving a Statutory Demand
The Corporations Act 2001 (Cth) sets out the procedure that must be followed when
serving a statutory demand. The procedure can be complicated.
If a statutory demand is not properly served a court may find that the service was invalid
and set aside the statutory demand.
Under the Corporations Act, all companies must register their office address with ASIC
and keep those registered details up to date. A creditor can serve a statutory demand by
leaving it at the registered office of the debtor company, sending it by post to that office
or delivering a copy of the demand personally to a directory of the company who resides
in Australia.
You cannot serve a statutory demand on a foreign company as separate procedures are
in place to wind up foreign companies.
Under the Commonwealth Evidence Act, a postal article sent by prepaid post to a
person at a specified address in Australia is presumed to have been received 4 business
days after postage. That timeframe can be accelerated by serving a statutory demand
by express post, where the date of delivery can be tracked and proven by Australia
Post’s tracking system.
Avoiding Pitfalls
Debtor companies often argue that they did not receive the statutory demand on the day
it was served, or that they never received the demand in the first place. These issues
can be avoided by:
• undertaking a company search in relation to the debtor company and ensuring
that the address on the envelope serving the statutory demand is identical to the
address appearing on the ASIC record;
• hand delivering the demand to the registered office; and/or
• keeping contemporaneous records of the details of service (something which is
made easier if registered post is used).
Where a creditor becomes aware that the company no longer occupies the registered
address and the creditor is aware of the new address, then he or she should bring the
demand to the notice of the company at that new address.
If the creditor is aware that the company no longer occupies the registered address but
does not know where the company has moved, then it is prudent to serve the statutory
demand on the company’s director.
Conclusion
There is a strict procedure with respect to the service of a statutory demand.
A failure to properly issue a demand can be expensive. The statutory demand may not
be enforceable if it is not served in accordance with the relevant procedure.
Debtor companies regularly claim that they did not receive the statutory demand on the
day it was served. As such, it is advisable that a statutory demand be served on a
company by being personally delivered to the registered offices of the company.
If you or someone you know wants more information or needs help or advice, please
contact us on (03) 9600 0162 or email info@lordlaw.com.au.
