Statutory Demands and Winding Up Applications: How to Protect Your Company
Receiving a statutory demand can put your company’s future at risk. For building contractors, developers and other companies, recognising the demand and responding promptly is critical.
A failure to comply within the statutory period can create a presumption of insolvency, which a creditor may rely on when applying to wind up the company. Challenging a winding up application can be more costly and demanding than addressing the statutory demand at the outset.
Understanding the distinction between these two stages and the steps each requires can help your company respond effectively.
What is a statutory demand?
A statutory demand is a formal demand served by a creditor seeking payment of a debt that is due and payable by a company. It is governed by the Corporations Act 2001 (Cth) (“the Act”), and the debt must meet the applicable statutory minimum.
A statutory demand is not appropriate where there is a genuine dispute about the debt or a genuine offsetting claim.
For creditors, this makes careful preparation essential. For companies receiving a demand, it makes an immediate assessment of the debt and any grounds for challenge equally important.
What must a statutory demand contain?
A statutory demand must satisfy the requirements of the Act. Among other things, it must:
- Be in writing and in the prescribed form.
- Specify the debt and the total amount owed.
- Require the company to pay, secure or arrange payment of the debt within 21 days.
- Be signed by or on behalf of the creditor.
Unless the debt is a judgment debt, the demand must also be accompanied by an affidavit verifying that the debt is due and payable. The affidavit must comply with the applicable legislative requirements and court rules.
Problems with the supporting affidavit, including the authority of the person making it, may provide grounds for setting the demand aside.
How is a statutory demand served?
Service is an important part of the process. Under section 109X of the Act, methods of serving a company include leaving or mailing the document to its registered office, or personally delivering it to a director who resides in Australia or an external Territory.
Creditors should confirm the relevant company details before arranging service. Companies should remain alert to documents received at their registered office so that a statutory demand receives prompt attention.
A problem with service may affect the demand and should be assessed when reviewing the available response.
What should you do if your company receives a statutory demand?
Act promptly. The statutory demand carries a 21-day response period.
Your company should obtain legal advice to assess whether to comply with the demand or apply to have it set aside.
Under section 459G of the Act, an application to set aside a statutory demand must be made within the statutory period. A supporting affidavit must also be filed, and copies of both the application and affidavit must be served on the creditor within that period.
Preparing an objection alone is insufficient: the filing and service requirements require close attention.
When can a statutory demand be set aside?
The grounds identified in the Act include:
- A genuine dispute about the alleged debt.
- An offsetting claim held by the company.
- A defect in the demand that would cause substantial injustice unless the demand is set aside.
- Some other reason, including an abuse of process.
A defect does not automatically mean the demand will be set aside. Where a challenge relies on a defect, the court must be satisfied that it would cause substantial injustice unless the demand is set aside.
Early legal assessment can help identify the relevant grounds and prepare the supporting evidence within the statutory period.
What happens if your company fails to comply?
Failure to comply with a statutory demand within the statutory period can give rise to a presumption of insolvency. A creditor may then rely on that failure to apply for the company to be wound up.
Other creditors may join the proceeding in support of the winding up application. Publication of the application on the Australian Securities and Investments Commission website may also adversely affect the company’s credit standing.
If the response period has already expired, promptly checking whether a winding up application has been filed is an important next step.
How do you respond to a winding up application?
A winding up application is a separate stage from the statutory demand. A company may still oppose the application, but doing so can involve substantial preparation, evidence and legal costs.
A company intending to oppose the application must file and serve a notice of appearance in the prescribed form, stating its grounds of opposition.
Where the company seeks to establish solvency, affidavit evidence, from appropriate persons must address the presumption of insolvency. Accounting evidence may help demonstrate that the business is viable and can pay its debts as they become due.
Supporting material may include:
- Bank statements and financial returns.
- Taxation records.
- Statements of assets and liabilities.
- Verified accounting evidence of profitability.
- Evidence of ongoing work and the company’s debt position.
The strength of the evidence matters. A company should not assume that a creditor will withdraw the application or that settlement will occur.
Legal assistance with statutory demands and winding up applications
Whether you are a creditor pursuing payment or a company responding to a demand, these processes require careful preparation and prompt action.
Lovegrove & Cotton Lawyers can assist with preparing statutory demands, winding up applications and preparing affidavits, as well as the associated filing and service requirements.
This article was settled by Tsigerda Lovegrove
If your company has received a statutory demand or winding up application, feel free to contact us via our website Lovegrove & Cotton’s website or email enquiries@lclawyers.com.au.
Lovegrove & Cotton — Construction and Planning Lawyers
Established in 1993, Lovegrove & Cotton advises and represents company owners, builders, plumbers, building surveyors and other building practitioners in disputes and regulatory matters, including matters in Victoria, New South Wales, Queensland and the Australian Capital Territory.
Disclaimer: This article provides general information only and does not constitute legal advice. Seek advice specific to your circumstances.
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How to Prepare and Respond to Statutory Demands and Winding up Applications.
