If you're about to issue a Statutory Demand, failure to fulfil the requirements can spell serious trouble for its success.
In this first article of our two-part series, we discuss how to correctly issue a Statutory Demand with a second follow up article on defective Statutory Demands and the consequences of issuing such a demand.
Please note that this article only deals with issuing a Statutory Demand, not what to do if you receive one.
Failure to correctly issue a Statutory Demand can land issuers in hot water and result in serious consequences if the demand is defective and an application to set it aside is successful. Senior Associate Cassie O'Bryan outlines tips and tricks below to ensure you hit the right notes and stay out of trouble.
What you need to know:
- When issuing a Statutory Demand, the debt must be described with sufficient clarity.
- The debt must be 'due and payable'. For example, if it has not crystalized, it will not be due and owing.
- The Statutory Demand must be in the prescribed form, available at Schedule 2 to the Corporations Regulations 2001.
- The Statutory Demand must contain an affidavit.
What is a Statutory Demand?
A Statutory Demand is a formal, verified demand issued under section 459E of the Corporations Act 2001 (Cth) (Act) claiming payment of a debt against a company. It has serious consequences if not complied with within the strict 21 day time limit.
What do I need to include in a Statutory Demand?
What do I need to include in a Statutory Demand?
A) The Statutory Demand must include a debt that is due and payable
Section 459E(1) of the Act provides that:
- A person may serve on a company a demand relating
- a single debt that the company owes to the person, that is due and payable and whose amount is at least the statutory minimum; or
- 2 or more debts that the company owes to the person, that are due and payable and whose amounts total at least the statutory minimum.
The most complicated and often incorrectly completed part of the form is the calculation and description of 'the debt'. The debt must be described in the demand with sufficient information and clarity for the debtor company to be able to determine the nature and amount of the debt.
The statutory minimum is $2,000 and must be due and payable. There is no definition of debt or what is considered 'due and payable' and as such, both of these terms have been interpreted by the Courts and are often where those issuing the demand come unstuck.
The basic principal is that the debt must be due and owing at the time of issuing the demand. As such, if the debt has not crystallised, it will not be due and owing. For example, the following have been deemed NOT to be due and payable:
- Contingent or prospective liabilities;
- Unliquidated damages;
- Costs orders (unless a taxation has taken place and final certification awarded);
- A claim for interest accruing after the date of the demand;
- A claim for trust income by a beneficiary;
- A claim for breach of contract where there has been no determination as to liability;
- A claim for indemnity under an insurance policy; and
- An unpaid portion of a lump sum contract (depending on the wording of the contract).
B) The Statutory Demand must contain certain details and be in the prescribed form
Section 459E(2) of the Act provides that:
- The demand:
- if it relates to a single debt – must specify the debt and its amount; and
- if it relates to 2 or more debts – must specify the total of the amounts of the debts; and
- must require the company to pay the amount of the debt, or the total of the amounts of the debts, or to secure or compound for that amount or total to the creditor's reasonable satisfaction, within 21 days after the demand is served on the company; and
- must be in writing; and
- must be in the prescribed form (if any); and
- must be signed by or on behalf of the creditor.
The 'prescribed form' is a standard form document found at Schedule 2 to the Corporations Regulations 2001, titled form 509H. The document does not need to be completed by a lawyer and is relatively straight forward.
C) The Statutory Demand must contain an affidavit
Section 459E(3) of the Act provides that:
3. Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that:
- verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and
- complies with the rules.
The affidavit may be found at Schedule 2 to the Corporations Regulations 2001, form 7. No amendments should be made to the pro-forma forms as amendments may result in the demand or the affidavit being deemed defective.
An affidavit must only be sworn by a person who has a reliable source of knowledge in respect of the debt such as a director, an accountant, a bookkeeper, or the person to whom the debt is owed if it is owed to an individual. The affidavit should also be sworn on the same day as the date of the demand.
Whilst failing to correctly issue a Statutory Demand can lead to serious consequences, following the tips and tricks above can help avoid such situations and help to ensure you get the result you want.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Madgwicks is a member of Meritas, one of the world's largest law firm alliances.