Saal & Associates Lawyers, Corporate Insolvency & Bankruptcy Lawyers & Solicitors - Brisbane, Gold Coast, Gladstone, Qld

Statutory Demands – Companies Beware !!!

15 Jul 2014, by Brett Saal at Saal & Associates Lawyers

Has your company ever failed to pay a supplier’s tax invoice on time or missed a payment to the ATO? If so, your company may be at risk of being served with a Statutory Demand.

There are potentially serious and catastrophic consequences for a company if it does not properly respond to a Statutory Demand, including the company being wound up.

In order for a creditor to serve a company with a Statutory Demand, it must owe at least $2,000.00. A creditor cannot service a Statutory Demand if the amount it alleges is due and payable to it is less than $2,000.00. However, a creditor can combine two outstanding amounts due to it by the company in order to exceed the $2,000.00 requirement.

When served with a Statutory Demand the company must, within 21 days from the date it was served, take one of the following steps:

1. Pay the amount sought in the Statutory Demand;
2. Negotiate payment of a lesser amount and receive written confirmation from the creditor who served the Statutory Demand that it has been withdrawn;
3. Apply to the court to set the Statutory Demand aside - generally on the grounds that there is a genuine dispute or an offsetting claim against the creditor. Although less common, a Statutory Demand can also be set aside because it is defective on technical grounds.

It cannot be stated strongly enough that if you do not take one of the three steps outlined above within the 21 day period the company will be presumed to be insolvent. This presumption does not automatically result in the company being wound up and liquidators appointed. However, this presumption allows any creditor to apply to the court to wind up the company on the basis of that presumption.

When a company is wound up it can no longer trade and liquidators are appointed to the company to collect and sell its assets and pay creditors some or all of the money they are owed by the company.

To best protect itself in the event that it is served with a Statutory Demand, a company should implement the following:

1. Ensure that the address for the company’s registered office is kept up to date - Service of a Statutory Demand only requires it to be served on the company’s registered office. If a creditor can prove that it served a Statutory Demand on the company’s current registered office at the address listed with ASIC it makes no difference whether it actually comes to the attention of the director, secretary or other officers of the company.
2. If the address for the company’s registered office is that of the company’s accountant, ensure that the accountant’s details listed on ASIC records for the company are current. Also, write to the company’s accountant and advise them who on behalf of the company, ideally two people, is to be notified of any Statutory Demand served on their office for the company.
3. If the company disputes any tax invoices it receives from a creditor it should put that dispute in writing at the time it receives the tax invoice. That correspondence can be used as evidence in an application to set aside a Statutory Demand that the creditor was aware of a genuine dispute in relation to the amount outlined in the tax invoice.
4. Any agreement the company enters into with a creditor to pay a lesser amount on a tax invoice in full and final settlement should be put into writing and forwarded to the creditor to confirm the agreement reached.
5. The company should contact a solicitor immediately upon receipt of a Statutory Demand. A solicitor will require much of the 21 day period in which to properly assist the company in taking one of the steps outlined above.

It is also important to seek advice from a solicitor who has knowledge and experience in dealing with Statutory Demands to ensure that all appropriate steps are taken within the 21 day period.