Risks Of Issuing A Statutory Demand

risks-of-issuing-a-statutory-demand

When a company owes you money you may believe that issuing a statutory demand is the best course of action to recover the outstanding funds. But when issuing a statutory demand there are many risks associated that you must be aware of before taking action.

In this article I’ll explain…

  • What you must be aware of
  • Steps to take before issuing a statutory demand
  • Possible consequences if your statutory demand is set aside (I’ll explain what “set aside” means below)

What Is A Statutory Demand?

The Australian Treasury describes a statutory demand as…

A notice made by a creditor under the Corporations Act on a debtor company. As the name suggests, a statutory demand demands the payment of a debt. The debt, the subject of the statutory demand, must exceed the statutory minimum (currently $2,000).

A company has 21 days in which to comply with the statutory demand from the date of service of the demand. If the debtor wishes to contest the demand, it must do so within 21 days of being served with the demand.

If the debtor company does not comply with the Statutory Demand by paying the debt or does not apply to the courts to have it set aside within 21 days, it is presumed that the company does not have the ability to pay its debts when they fall due and is therefore insolvent.

Setting Aside A Statutory Demand (Ensure that your demand is valid)

If the debtor company believes that the statutory demand is not valid then they can apply to the courts to have it set aside within 21 days of receiving the demand notice.

There are 4 grounds for which a statutory demand can be set aside, they are:

(a) There is a genuine dispute between the company and the person serving the statutory demand about the existence or amount of a debt to which the demand relates

(b) The company has an offsetting claim

(c) Because of a defect in the demand, substantial injustice will be caused unless the demand is set aside

(d) There is some other valid reason why the demand should be set aside.

So before serving a statutory demand you must ensure the correct processes have been followed to recover the funds and also that the demand is 100% valid. The reason being, if the debtor company is successful in having the demand set aside then not only will you be liable for your own legal costs (including time and energy involved in the legal process) but you may also be ordered to pay the debtor company’s legal costs as well.

One other important thing to be aware of is that even if your demand is successful and the company is wound up and liquidated, you still might not recover the money owed in full, or at all.

During the liquidation process it may found that due to the company’s poor financial situation there is no money to pay your debt, so you need to be sure that taking this course of action is worth your time and money before getting started in the first place.

Steps To Take Before Serving A Statutory Demand

There are a number of steps you need to take to try recover your funds before issuing a statutory demand, and if the matter does go to court, the court will want to see that you have taken these necessary actions to try to recover the funds before serving the demand.

Following our proven process for debt recovery ensures you cover all bases and may help you come to an agreement with the debtor that helps you avoid litigation. If these initial steps are unsuccessful it is also wise to engage a professional debt collector to help you draft a letter of demand and follow up with the debtor, as these companies are specialist in debt recovery, they are very effective and efficient at recovering outstanding debts and will save you time and money in the process.

In fact many debt recovery companies offer a No recovery, No fee service so you only pay if they are successful.

Weighing Up The Risk Vs Reward

Now you understand the risks associated with issuing a Statutory Demand you can carefully consider your options and ensure that…

  1. The demand is 100% valid
  2. You have taken the appropriate steps to try to recover the funds
  3. That the company is in the financial position to pay you if your demand is successful

If you would like to discuss a current outstanding debt with our professional debt recovery agents, please contact us here.

Written by Richard Thompson

Richard Thompson is the Managing Director and owner of JMA Credit Control and has over 25 years’ of trusted experience. Richard has a wealth of knowledge in Credit Management and Debt Recovery ensuring client’s recovery bad debt quickly and cost effectively.

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