Statutory Demands - 21 days means 21 days!

3rd November, 2011

STATUTORY DEMANDS - 21 days means 21 days!

Indicative of the tough economic times, a quick glance at the Federal and Supreme Courts' case lists reveals an ever increasing number of applications for the winding up of companies in insolvency, particularly by the Australian Taxation Office (ATO). In our experience, the basis for such a winding up order is, in an overwhelming number of cases, brought about by the company's failure to comply with a statutory demand.

WHAT IS A STATUTORY DEMAND?

The Corporations Act allows creditors who are owed more than $2,000 to serve a creditor's statutory demand on a company. Significantly, for a demand to be issued against a company, the debt or debts need only be due and payable and not in dispute. While a judgment for this amount is often obtained, it is not a prerequisite to issuing a demand.

Essentially, the statutory demand is a standard (and rather innocuous looking) form which states the amount of the debt and requires the company to make payment, or to secure a compound of the debt to the creditor's satisfaction, within 21 days. Once a company has been served with a statutory demand, immediate action must be taken as this 21 day period must be strictly complied with and cannot be extended by the court. A failure to take action within this time may potentially result in the company being wound up.


WHAT ARE YOUR OPTIONS?

A company served with a statutory demand has essentially three options:

1. Pay the amount of the debt stated on the demand;

2. Come to agreed terms for payment with the creditor; or

3. Bring an application to have the demand set aside by reason of a substantial defect, offsetting claim or genuine dispute as to the amount owing.

Regardless of which option is taken, under no circumstances should the demand be ignored or no action taken. A failure to either comply with the demand or apply to have it set aside within the 21 day time period will deem the company to be insolvent and entitle the creditor to bring a winding up application. Such a winding up application may result in a winding up order being made placing the company into liquidation.

BE AWARE!

For accountants, as these notices are regularly served on your office as the registered office of the company, you must be vigilant and ensure there are procedures in place for notification of clients once statutory demands are received and ought to be actioned.

For creditors, the statutory demand procedure provides a relatively simple and expeditious means of securing payment of a debt owed by a company. A word of warning to all companies and directors, it is this procedure the ATO regularly uses to collect unpaid tax debts and while a statutory demand may not look like much, if ignored it has dire ramifications for the company. Once a statutory demand has been received, immediate action or legal advice should be sought to avoid the company being wound up.

FOR MORE INFORMATION

At Scoglio Law we can assist you with all aspects of the debt recovery process. If you are a creditor wishing to discuss the possibility of issuing a creditor's statutory demand, a director of a company that has been served with a demand, or simply want more information about how our processes can work for you, please contact Tony Scoglio of Scoglio Law on (07) 3833 2100 or email tony@scogliolaw.com.au.

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