Statutory Demands in Australia

A statutory demand is a formal demand for payment to a company issued under section 459E of the Corporations Act 2001 (Cth). It's a powerful tool for creditors to demand immediate payment of a debt owed by a company, and if not dealt with properly, can ultimately lead to the debtor company’s winding up.

Below are some key insights and practical guidance to ensure you navigate this process correctly.

1. Understanding the Statutory Demand Process

Despite its relative simplicity in theory, many clients and colleagues remain confused about how statutory demands actually work in practice. The steps typically involve:

1. Establish the Debt (one which cannot be disputed)
   You need to confirm there is a legally enforceable debt (e.g., under contract or another legal basis) that is due and owing. If there is a genuine dispute about the debt, a statutory demand is not the appropriate mechanism.
2. Issue the Statutory Demand
   This document is in a standard form but it must be checked by a lawyer (errors can result in costs orders). Once the debt is confirmed, you draft and serve the statutory demand on the debtor company. Service must comply with the Corporations Act, and you must ensure you have the most up-to-date registered office and other relevant addresses (see below).
3. 21-Day Deadline for Debtor to Pay or Apply to Set Aside
   The debtor has 21 days from the date of service to either:
   • Pay the debt;
   • Secure or compound the debt to your satisfaction; or
   • Apply to the Court to set aside the demand (e.g., on the ground of a genuine dispute or defect in the demand).
4. Warning to Debtors: Courts are typically reluctant to extend this 21-day limit. If the debtor does nothing within this window, they generally lose the right to dispute the demand, which makes the next steps very easy for creditors (assuming their statutory demand was drafted correctly).
5. Commencing Winding-Up Proceedings
   If after 21 days the debtor has not complied or applied to set aside the demand, you can then file an application in the Court to wind up the company (assuming the debt threshold and other requirements are met).
   • Appointment of Liquidators: Before filing a winding-up application, you must obtain the consent of a registered liquidator who is prepared to act if the Court grants the winding-up order.
   • Hearing Date and Appointment: Once the application is lodged, the winding-up hearing date is generally set quite soon. If the winding-up order is made, the liquidator takes control of the company’s affairs.

2. Threshold Limit

• The debt threshold for issuing a statutory demand is currently $4,000 AUD (in January 2025, subject to change).
• You cannot issue a statutory demand if the debt is below this amount.
• However, you can combine debts with other creditors eg., if you're owed $2,000 and person B is owed $2,000 then you can issue a "joint statutory demand".

3. Confirming the Company’s Details is Critical

• Obtain a Fresh ASIC Search
  Always conduct a current ASIC (Australian Securities and Investments Commission) search right before serving the statutory demand. Do it again immediately before filing any winding-up application.
• Potential Address Mismatches
  Directors sometimes fail to update the company’s registered office or principal place of business. Relying on outdated records can lead to service disputes.

Practical Tip:
Do a final ASIC search on the day you plan to serve or file the statutory demand to ensure all details (company name, ACN, registered office) are accurate. Likewise do one immediately before filing your winding up application. It's not uncommon for companies to have insolvency practitioners appointed in the window between when a statutory demand was issued and when it expires.

4. Methods of Service and Common Pitfalls

• Postal Service:
  Service by post is allowed under the Corporations Act, but it remains an antiquated method prone to disputes about non-receipt. Even after 2020, there have been numerous cases where companies claimed they never received the demand by mail.
• Time Allowance for Post:
  If you use regular post, add four (4) business days to account for delivery for ordinary post. This affects the date of service and the start of the 21-day response period.
• Multiple Addresses & Electronic Copies:
  Until the law modernises service methods, best practice is to send the demand to every possible address - the registered office from ASIC, the business or trading address, and, if relevant, addresses for any directors (especially emails). Sending a copy by email (while not always formally valid service) assists to add evidence to your affidavit of service and further reduces any claim of non-receipt. In exceptional cases where service is an issue, it may be necessary to apply for substituted services.

5. After the 21 Days: Winding Up the Company

Once the 21-day period expires, and if the debtor company has not complied or sought to set aside the statutory demand:

1. Presumption of Insolvency
   The company is presumed insolvent, which paves the way for the creditor to apply to the Court for a winding-up order.
2. Filing the Winding-Up Application
   You must file the appropriate documents with the Court, including an affidavit proving service of the demand and a consent from the proposed liquidator.
3. Hearing Date & Liquidator Appointment
   The Court hearing is typically scheduled relatively quickly. If the winding-up order is granted, the appointed liquidator steps in to take control of the company and its assets.

6. Conclusion

A statutory demand can be an efficient and powerful instrument for creditors seeking payment—provided the demand is issued correctly and served in compliance with the Corporations Act. The process can be summarized as follows:

1. Confirm there is a valid, undisputed debt.
2. Issue the statutory demand (ensuring correct service) and allow the 21-day response window.
3. If the debtor fails to respond or set aside the demand within 21 days, file an application to wind up the company.
4. Obtain the consent of a registered liquidator before lodging the winding-up application, as the appointment will follow soon after.

By verifying all details through an up-to-date ASIC search, serving the demand to multiple addresses (including via email where possible), and keeping a close eye on the 21-day period, you significantly increase your chances of successfully recovering the debt or proceeding with an orderly winding up.

Disclaimer

This article provides general information only and does not constitute legal advice. For specific compliance guidance, seek professional assistance. Liability limited by a scheme approved under Professional Standards Legislation.

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