Debt Recovery Update – Increase to Statutory Demand Threshold From 1 July 2021

Debt Recovery Update

Where a Pty Ltd company owes a debt, statutory demands are the first (and most common) step of a formal legal process that allows creditors of the Pty Ltd company to eventually seek a court order to wind up the Pty Ltd company and appoint a liquidator.

The right of a creditor to make an application for a court order to wind up the Pty Ltd company is triggered where the Pty Ltd company fails to pay a debt within 21 days after service of the statutory demand.

At the moment, the minimum debt threshold that must exist before a statutory demand issued to a Pty Ltd company by a creditor is $2,000.

That threshold is about to change.

The Federal government recently announced in the May budget that the minimum statutory demand debt threshold would permanently rise from the present $2,000 to a new minimum amount of $4,000.

This change in the minimum threshold is expected to come into effect from 1 July 2021.

It remains to be seen whether this relatively minor increase in the debt threshold for statutory demands will have any real or lasting effect on business insolvencies. This new measure was announced by the Federal government along with other insolvency focused initiatives, including a review of safe harbour provisions that came into effect in 2017, and an examination of trading trusts as they relate to insolvency.

Regardless of the minimum debt increase to $4,000, the statutory demand process should only be used if there is no genuine dispute about the existence or the amount of the debt a creditor is owed by the Pty Ltd company.

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.

    Contact Information

    Direct Line: 1300 068 736