Every week, all types of creditors (including the Australian Taxation Office) who are owed more than $2,000 by a Company utilise the Creditor’s Statutory Demand (Demand) regime allowed under Corporations Act in an attempt to recover the money in a timely manner.
While a Court judgement against the Company in question, specifying the exact amount of the debt due and owing, is often attached to the Demand, such a judgement is not necessary to utilise the Corporations Act process, and all a creditor need do is swear (or affirm) a supporting affidavit to the Demand confirming the fact that the claimed debt is due and payable, and that there is no genuine dispute about the existence or amount of the debt.
The Corporations Act permits service of the Demand to be effected by a Company by simply posting the Demand to a Company’s registered office listed in the records maintained by ASIC.
The Demand is an innocuous looking document, but can pack a large punch if Company directors (and their accountants) do not give it the respect it deserves once it has been served on the Company.
A Company served with a Demand has three (3) options, which must be actioned within 21 days from the date of service of the Demand:
- Pay the amount of the debt stated in the Demand;
- Come to agreed terms for payment of the debt with the creditor; or
- File and serve an application in Court to have the Demand set aside.
Regardless of which of the above options a Company may consider taking, the most important thing is not to ignore the Demand.
This is because the 21 day period allowed under the Demand must be strictly complied with and cannot be extended by any Court in Australia.
If you miss the 21-day deadline, then you have missed the boat in respect to disputing the Demand, and the Company will be, on Day 22, presumed to be insolvent. The creditor owed the debt can then rely on this presumption to apply to the Court to have the Company wound up and a liquidator appointed.
If the prospect of liquidation is not bad enough, allowing such a presumption of insolvency to arise against a Company can also have other far-ranging consequences, including the Company breaching other contracts it has entered into, and then potentially being sued for damages (or further Demands being issued). This is because it is commonplace for contracts to specify that a Company commits an event of default under a contract should the Company be served with a Demand which is not resolved within the allowed 21 days.
Also, because it is very common for a Company to list its accountant as the registered office address for the Company, it is particularly important for accountants to be vigilant and aware of what documents are being delivered to them on the Company’s behalf.
Accountants must ensure they have processes and procedures in place for notifying a Company immediately on receipt of a Demand on the Company’s behalf, and recommending to the Company that it obtain proper advice as soon as possible as to the effect of the Demand and the options the Company may have.
Obtaining early and proper advice on the Demand, well within the 21 day time limit allowed, can allow a range of options to be explored being the Company and its creditor, and also allow sufficient time for the necessary Court action to set aside the Demand to be filed and served on the creditor, should that be required.
Take Home Points
- Companies must keep their registered office details up to date.
- Don’t miss the 21-day deadline for the Demand; otherwise, you’ve missed the boat!
- If a Company or its accountant ignores the Demand, and the 21-day deadline expires, it can have dire consequences for the Company, including liquidation.
- Once a Demand has been received, immediate legal advice, well within the 21 days, should be sought by the Company.
FOR MORE INFORMATION
If you would like more information regarding the above, or on any other issue relating to debt recovery, personal or company insolvency, please contact our specialist Insolvency team on (07) 4616 9898.
This publication has been carefully prepared, but it has been written in general terms and should be viewed as broad guidance only. It does not purport to be comprehensive or to render advice. No one should rely on the information contained in this publication without first obtaining professional advice relevant to their own specific situation.