A statutory demand is the first actionable step against a company taken by a creditor who has sought to recover a debt and is now looking to establish the insolvency of a debtor. It is not another bluff debt recovery tactic to ignore or play for time. Once a company has been issued with a statutory demand there are strict deadlines within which the company must respond to avoid a winding up application being filed.

The Corporations Act 2001 sets out the obligations of a corporation that has been served with a statutory demand.

Under s459E; the company has 21 days to pay the debt unless the amount or debt itself is disputed. If the Directors of the company wish to dispute the debt, they need to apply to the court to have the statutory demand set aside, under s 459G of the Act.

However, regardless of whether the Directors plan to pay the debt or dispute it, action must be taken within the stipulated 21 day time period. If a company fails to do this, it will be considered insolvent under section 459C. It is this presumption of insolvency and section 459F that gives creditors the power to apply to the court for the winding up of a company that does not comply with a statutory demand.

For this reason, once a company has been issued with a statutory demand, the directors must move quickly to prevent any further legal action that may result in the winding up of their company.

The ATO and Statutory Demands

While the most recent Federal budget included several tax incentives for small businesses, the Government is looking for other ways to increase their income. The ATO is calling in their debts with a considerable increase in winding up applications being filed. As an illustration, 550 applications were made in May and more than 425 applications were made in June. Compared with the fewer than 100 applications made in April – the ATO is clearly serious about rounding up offenders. It is likely that many of these winding up applications are the result of unanswered and expired statutory demands.

If your company receives a statutory demand from the ATO or any other creditor, it is important that you act quickly and are aware of the law and options available to you.

For advice on what to do after your company has received a statutory demand, contact our Dispute Resolution, Insolvency & Reconstruction team on

P 02 6215 9100 or E stipe.vuleta@chamberlains.com.au OR sayward.brest@chamberlains.com.au

Article by Phoebe Morrison