One of the most powerful tools a business has in recovering a debt is a Statutory Demand. This debt collection tools allows creditors to issue a Statutory Demand to a company that owes them money immediately after a debt greater than $2,000.00 becomes due, as long as the debt is not disputed.
In order to issue a Statutory Demand a certificate must be signed stating that no genuine dispute exists in relation to the debt.
Issuing a Statutory Demand provides the recipient with 21 days to:
- Pay the debt in full; or
- File an application in court for the demand to be set aside on the basis that a genuine dispute over the debt does exist.
If neither of these conditions are met by the recipient within the 21 day time limit then the company is deemed to be insolvent. This is due to the fact that under section 95(A) of the Corporations Act, if a company is unable to pay its debts as and when they fall due, then it is deemed to be insolvent. By failing to respond to a Statutory Demand then a company is deemed to be insolvent as it is unable to pay this debt by its due date.
If the debtor company considers a genuine dispute does exist and makes this application to the Court, under s 459H(1) of the Corporations Act,
1) The court must investigate the claim and satisfy that:
- a) That a genuine dispute between the companies over the dispute does exist, whether that be its existence, or the amount of the debt; and/or
- b) That the respondent company has an offsetting claim.
2) If one, or both, of the conditions above are met then the Court must calculate the debt amount that can be substantiated in accordance with the formula set out in this section of the Act.
Where the substantiated amount is less than $2,000.00 the Court must order the Statutory Demand be set aside. While if the substantiated amount remains above the $2,000.00 statutory limit, then the Court must either vary the demand specified in the Statutory Demand, or declare that the original Statutory Demand is to remain as originally served and the respondent company must comply with it.