A statutory demand is a helpful debt recovery method against a company (the Company), if the Company owes the debt, and is solvent. If a statutory demand is correctly prepared and served, and the Company fails to pay the debt within the prescribed time (21 days from the date of service), or otherwise fails to make arrangements for the repayment of the debt to the creditor’s satisfaction, the Company will be presumed insolvent which allows the creditor to make an application to wind the Company up.
However, because an order by the Court that a company has committed an act of insolvency potentially has such serious consequences, including the order that the company be wound up, the Court requires strict compliance with the legislation. By way of example, last year in the Supreme Court decision of Unity Resources Group Australia Pty Limited  NSWSC 1174, the Court made an order setting aside a statutory demand on the basis of a defect in the affidavit verifying the statutory demand. The defect was that the affidavit verifying the statutory demand was sworn one day before the date of the demand.
Notwithstanding, the creditor’s argument that the statutory demand should not be set aside as the defect had not resulted in substantial injustice to the company, the Court rejected that argument and held that:
“it can make no difference whether the affidavit is sworn a month, a week, four days, two days or one day before the date of the demand. In principle, the same consequence must follow.”
The demand must be set aside.
This decision serves as an important reminder about the need for careful preparation of statutory demands. Failing to do so can result in you: being the subject of an order to pay the debtor company’s legal costs; paying your legal costs with no successful outcome; and, having missed the opportunity to have the debtor company deemed insolvent it will be ready next time.
If you are owed money by a company and it refuses to pay, we can manage the statutory demand process in accord with the Corporations Act.
If you have any questions about debt recovery methods please do not hesitate to contact our Debt Recovery Team.