A statutory demand is a means by which a creditor gives notice to a debtor company it must pay the debt owed to the creditor. If the debt is not paid, and is not disputed, the creditor can apply to the High Court to liquidate the debtor company.
In order to issue a statutory demand, the debt must be due, and be more than or equal to $1,000. The statutory demand must be in writing and be served on the debtor.
Once served, the debtor must within 15 working days either:
- Pay the debt,
- Enter into a compromise or other such mutual arrangement with the creditor for paying the debt, or
- Give a charge over its property to secure payment of the debt to the reasonable satisfaction of the creditor.
Alternatively, if the debtor disputes the demand, it must apply to the Court within 10 working days of service of the statutory demand to have the demand set aside. The application must establish either:
- There is a substantial dispute whether or not the debt is owing or due,
- The company appears to have a counterclaim/set off against the amount specified in the demand, or
- The demand ought to be set aside on other grounds.
Statutory demands are useful ways to recover debts as the debtor must take action to avoid liquidation. However, the Courts have made clear it is improper for creditors to issue statutory demands unless they have sound grounds for believing there is no dispute of substance or counterclaim/set off with respect to the debt. Demands should not be a means of “embarrassing a party in a situation where there is a contest as to liability for a given debt”.