How To Respond To A Statutory Demand

When a company receives a statutory demand from a supplier, it may be unclear how to proceed. This can often be both a confusing and daunting scenario and without the right guidance in responding, you may be subjected to lasting legal implications that can affect your business. Fortunately, there are several options available for responding and, with the right legal advice and support, you can mitigate the risk of such a scenario.

The Insolvency Law team at Solomon Brothers regularly advise and advocate for companies in receipt of a statutory demand and, as such, we’ve put together the following guide on what to do if your company receives a Statutory Demand.

We welcome you to browse the article below, and if you’d like a reference document to work from, we’ve also provided a downloadable PDF Guide at the base of the article.

Firstly, What Defines A Statutory Demand?

The specific definition of a statutory demand is as follows:

A specific demand for payment that a creditor can issue to a company demanding that the company pay any outstanding debts that are due and payable.

Once received, the company in receipt of the demand has 21 days to respond or take appropriate action, otherwise, there can be serious legal consequences for that particular business. It is important to note that the 21-day deadline cannot be extended by the courts, so time sensitivity and awareness both become crucial during the process. Whilst these demands are often confused with debt collection, they in fact differ due to a set of strict rules and guidelines which govern how they are issued.

Outside of this 21-day window to respond, statutory demand requirements also state that these can only be issued for debts that equate to a minimum value of at least $4,000, so anything under this value would not be deemed eligible.

Potential Ways Your Company Can Respond

Within the 21-day period, the recipient of the demand has the opportunity to respond via these potential outcomes:

1. Paying the debt in full well in advance of the 21-day deadline to ensure the deadline is not missed (as the deadline cannot be extended by the courts).
2. Negotiating a compromise with the creditor to resolve the debt by paying periodical instalments.
3. Agreeing to an alternative payment amount so both parties can reach an amicable arrangement to settle the debt.
4. Applying to the court for the demand to be set aside in the event of a dispute or counterclaim against the creditor.

It is important to note that in the case of disputing the demand in court, if denied, the company with the statutory demand will then be given 7 days to settle their debt.

If your company finds itself in a scenario of having to respond to such a demand via the options above, it is recommended that you seek advice from professional insolvency lawyers like the Perth-based team at Solomon Brothers. Without the right legal representation, your company could face serious legal consequences, so having the right team will be an essential part of your response plan.

Insolvency Law Risks & Consequences

The laws of Insolvency Law clearly state that if a statutory demand is ignored and a suitable resolution has not been found within the 21-day deadline, the company’s current creditors may apply to the courts for the company to be wound up in insolvency within a three month period. Furthermore, the application can be made even if the debt has since been paid, even a few days after the deadline.

This is why it is important to pay or resolve the debt in dispute within the 21-day limit to avoid having to deal with a winding up application and having to prove that your company is indeed solvent – which can be a more difficult and costly task. For this reason, it is always best to act and act quickly rather than face a solvency test. This is something our team of insolvency lawyers in Perth has extensive experience in, so if you find yourself in this scenario, we welcome you to contact us.

Trust Our Team Of Insolvency Lawyers in Perth

If your company has been served with a statutory demand, it is crucial that you take it seriously and act urgently to seek legal advice. With years of experience assisting the Perth community with insolvency law advice and guidance, the team at Solomon Brothers can provide the legal representation and support to help companies through the challenges of incoming statutory demands.

We’ve summarised these guidelines in a downloadable PDF which you can download here or below the article, should you wish to store the information on your device.

For prompt insolvency advice to help guide your company through times of financial stress, contact the Perth team at Solomon Brothers.

Download How to Respond to a Statutory Demand