Professional Documents
Culture Documents
Statutory Demand Law in Australia
Statutory Demand Law in Australia
STATUTORY DEMANDS IN
AUSTRALIA
Statutory Demand
https://stonegatelegal.com.au/statutory-demand-complete-guide/
Contents
Statutory Demands ............................................................................................................................... 3
What is a Statutory Demand? .......................................................................................................... 4
What is the Statutory Demand Process?......................................................................................... 4
Eligibility Requirements of a Statutory Demand ........................................................................... 4
The Debtor must be a Company .................................................................................................. 5
The Debt(s) must be Equal to, or Greater than $2,000.00......................................................... 5
The Debts must Due and Payable ................................................................................................ 5
Formal Requirements of a Statutory Demand ............................................................................... 6
Must be in Writing and use the Correct Form – Form 509H ................................................... 6
The Header .................................................................................................................................... 6
Correctly Identify the Creditor ................................................................................................... 6
Debt is Due and Payable by the Company .................................................................................. 7
Pay, Secure, or Compound for the Debt Within 21 Days .......................................................... 8
Company can be Wound Up in Insolvency ................................................................................. 8
Application to Set the Demand Aside .......................................................................................... 8
The Warning Box .......................................................................................................................... 8
Address for Service of the Application........................................................................................ 9
The Debt Schedule ........................................................................................................................ 9
It Must Be Signed ........................................................................................................................ 10
The Notes ..................................................................................................................................... 10
Statutory Demand Formal Requirements .................................................................................... 11
Defective Requirements allowing for Setting Aside ..................................................................... 11
How to Serve a Statutory Demand ................................................................................................ 12
Service of a Statutory Demand .................................................................................................. 12
Leaving it at, or Posting it to, the Company's Registered Office ............................................ 12
The Postal Rule ........................................................................................................................... 13
Proof of Delivery ......................................................................................................................... 13
Personal Service of the Statutory Demand ............................................................................... 14
Interstate Service of Statutory Demand on Company ............................................................. 14
Substituted Service of a Statutory Demand .............................................................................. 15
Affidavit of Service of the Statutory Demand .......................................................................... 15
How to Serve a Statutory Demand ............................................................................................ 16
How to Comply with a Statutory Demand.................................................................................... 16
Complying with a Statutory Demand........................................................................................ 16
1
Within 21 Days after Service on the Company ........................................................................ 17
Pay to the Creditor the Amount of the Debt............................................................................. 18
The Securing of the Debt ............................................................................................................ 18
To Compound for the Debt ........................................................................................................ 18
To the Creditor’s Reasonable Satisfaction ............................................................................... 19
How to Comply with a Statutory Demand................................................................................ 20
Compliance with 21 Day Time Limit on Statutory Demands ..................................................... 20
21-day time limit for Compliance with Statutory Demands ................................................... 20
21-day time limit for Setting aside Statutory Demands ........................................................... 22
Does the Court have Discretion? ............................................................................................... 22
21 Day Time Limit to Set Aside Statutory Demands ............................................................... 23
21-Days means 21-Days .............................................................................................................. 24
Does this Part Operate Harshly? ............................................................................................... 24
Service of Statutory Demands over the Christmas Period ...................................................... 24
Service to an Office Closed over Christmas ............................................................................. 25
Weekends or Public Holidays .................................................................................................... 26
Setting Aside Statutory Demands .................................................................................................. 26
Abuse of Process and Failure to Comply with Statutory Demand ............................................. 27
Failure to Comply with a Statutory Demand or Set it Aside .................................................. 28
Withdraw the Statutory Demand .............................................................................................. 28
How to Withdraw a Statutory Demand ........................................................................................ 28
Withdrawing a Statutory Demand ............................................................................................ 29
Why can a Statutory Demand be Withdrawn .......................................................................... 30
Costs of the Application to Set-Aside ........................................................................................ 30
Considering how to Withdraw a Statutory Demand ............................................................... 31
Other Issues to Consider ............................................................................................................ 31
What Are the Risks of a Statutory Demand? ............................................................................... 31
Reducing Risk of Statutory Demand Qld ................................................................................. 31
Weighing Up the Risk v Reward ............................................................................................... 32
Trying to Settle with your Debtor Company ............................................................................ 32
Statutory Demand FAQ Questions ................................................................................................ 32
How long does a statutory demand last? .................................................................................. 32
Can a statutory demand be withdrawn?................................................................................... 33
What do I do if I receive a statutory demand? ......................................................................... 33
How Do You Serve a Statutory Demand? ................................................................................ 33
How can I get money owed to me? ............................................................................................ 33
2
What is a winding up order?...................................................................................................... 33
Can I issue a statutory demand? ............................................................................................... 34
What is Considered a Debt?....................................................................................................... 34
What is the Amount of Debt Being Claimed? .......................................................................... 34
What Form Should a Statutory Demand Take? ...................................................................... 34
What are the Implications of Ignoring a Statutory Demand? ................................................ 35
Can the 21 days in which to comply with a Statutory Demand be extended? ....................... 35
Do I need a Judgment or Affidavit to make a Statutory Demand? ........................................ 35
What is the Presumption of Insolvency if Demand is Unpaid?............................................... 35
How long does a Creditor have to Lodge a Winding up Application? ................................... 36
The Form 509H ................................................................................................................................... 36
The Form 7 .......................................................................................................................................... 38
Disclaimer
The content of this eBook is for general information purposes only. It is NOT a substitute for qualified
legal advice.
We strongly recommend seeking independent legal advice from a suitably qualified professional. All
circumstances are different, the law changes, and you will need professional legal advice based on the
facts of your particular matter.
3
Statutory Demands
A statutory demand is a written request for the payment of debts that are owed by an insolvent company,
under section 459E of the Corporations Act 2001 (Cth).
This complete guide to statutory demands is one of the most comprehensive free guides to statutory
demands in Australia.
This guide will look at how statutory demands work and when it’s appropriate to use these demands -
how to draft a statutory demand - how to serve a statutory demand - how to withdraw a statutory demand
- and more.
We offer professional advice and assistance in all things related to statutory demands
As mentioned above, a statutory demand is a demand for payment, issued by a creditor to a company
debtor.
The statutory demand requires the debtor to do one of the following:
1. Pay the debt; or
2. Ask the issuer to withdraw the demand; or
3. Secure or compound for the debt; or
4. Apply to set the statutory demand aside.
The debtor company has strictly 21 days to do the above. Failure to do one of these things raises the
legal presumption that the company is insolvent.
With the legal presumption raised the creditor can apply to the Federal Court or the Supreme Court for
an order that the company be wound up in insolvency.
This complete guide will outline the formal requirements and the process of issuing a statutory demand
including how to draft a statutory demand.
We will show you how to comply with the statutory demand if you have been served and the
consequences of non-compliance with the demand.
We will also show you how to correctly serve the statutory demand, and how to request that the statutory
demand be withdrawn.
This guide will not talk about setting aside a statutory demand, which has been addressed in
our complete guide to setting aside statutory demands.
Before we start, we must first consider the elements of eligibility to issue a statutory demand.
4
Eligibility Requirements of a Statutory Demand
If you intend to send a statutory demand there are some requirement that must be met before you do
so. These include:
1. The debtor must be a company;
2. The debt(s) must be equal to, or greater than $2,000.00;
3. The debts must due and payable; and
4. There is no genuine dispute about the existence or amount of the debt.
If you fit these criteria, then you may be entitled to serve the debtor company with a demand.
There is a statutory minimum amount of debt which must be owed before a creditor is eligible to issue
a creditor's statutory demand for payment of debt.
Section 9 of the Corporations Act defines a statutory minimum as:
"statutory minimum" means: (a) if an amount greater than $2,000 is prescribed - the prescribed
amount; or (b) otherwise--$2,000.
A creditor must have a debt, or debts, equalling $2,000.00 or more to be able to issue a statutory demand.
The debts must be due and payable at the time of drafting the statutory demand Form 509H, and the
Form 7 affidavit accompanying the statutory demand.
This may sound obvious, but a creditor must ensure that the time for payment has expired.
For example, if a creditor gave thirty (30) days payment terms, then those thirty (30) days need to have
expired.
5
If you satisfy the requirements above, then you can issue the debtor company with a creditor's statutory
demand for payment of debt.
We would always recommend using a suitably qualified legal practitioner to draft your statutory
demand.
However, if you are planning on drafting and serving creditor’s statutory demands yourself, then there
are several statutory demand formal requirements that you must comply with.
This part dovetails with our guide relating to formal defects in a statutory demand causing substantial
injustice.
If you do not get some of these formal requirements correct, then it could be a reason for the debtor
company to set the statutory demands aside.
The statutory demand formal requirements include:
Form 509H is located at schedule 2 of the Corporations Regulations 2001 (CTH). If you are drafting a
statutory demand yourself then you need to get a copy from there.
A statutory demand contains a header, six (6) paragraphs, a schedule, a signing section, and some notes.
These need to be correctly edited or face an application to set it aside, or a request that you withdraw
the demand.
The Header
The header of a statutory demand contains the name of the form, the section of the Corporations Act
applicable, the title, and the name and registered office of the debtor company. Just leave all of this in
the demand.
The most important thing to get the name, ACN, and address of the registered office correct.
You can order a company current extract from ASIC which contains all of this information. Best
practice is to simply copy (ctrl + c) and paste (ctrl + v) onto the demand.
6
Correctly Identify the Creditor
Paragraph 1 identifies the creditor. It is important that you get this correct.
This seems like it should be easy. However, you might be a director of several different companies,
with maybe a dozen business names, etc.
You must ensure that the legal entity that you add to part 1, is the same legal entity that you contracted
with, and is the legal entity that is owed the debt.
If you are owed one amount (an unpaid invoice for example) then you can use the first option and delete
the second.
If you are owed more than one debt (several invoices for different work) then you can use the second
option and delete the first.
It is important that you get this right as misidentification of parties, and misdescription of the debt (or
debts) have been found to be a defect causing substantial injustice.
In Scandon Pty Ltd v Dome Supplies Pty Ltd (1995) 17 ACSR 662 the statutory demand did not have
the correct name of the creditor, did not include the ABN of the creditor; and did not include an address
for service in the same State in which the statutory demand was served.
In this case, the demand was set aside with Senior Master Mahony saying:
[T]he statutory demand the subject of this proceeding will be set aside under s459j(1)(b)
because of the significance of the defects in the demand, albeit not productive in this case of
“substantial injustice” to the applicant to which s 459j(1)(a) could apply.
So, it important that you correctly identify your company if you want to successfully serve a compliant
statutory demand.
Paragraph 2 gives you options to inform the debtor that the amount of the debt is due and payable by
the debtor company.
If you are serving the debtor company with a statutory demand and supporting affidavit, then you
complete the second option and delete the first.
Tip – best practice is for the date of the affidavit accompanying a statutory demand, and the
date of the statutory demand should be the same.
The debt(s) must be due and payable by the debtor company. You cannot include debts which are not
due and payable (invoices with 30-day payment terms, before the expiry of 30 days, for example).
Failure to declare that the debt or debts are due and payable has been met with mixed case law, and
there have been various interpretations as to whether this omission caused substantial injustice.
7
There have been cases where the inclusion of invoices with the words “amount due” was enough to not
cause substantial injustice.
There have been cases where the inclusion of the debt being “due and payable” on the demand, but
omitted from the affidavit in support, was enough to set the demand aside.
Best Practice – make sure that paragraph 2 is included in the statutory demand. Failure to do
so and the debtor company may attempt to set it aside, creating more costs for you.
Paragraph 3 puts the debtor company on notice that they have 21 days to pay, secure, or compound for
the debt.
Payment of the debt means that the total amount of the debt contained in the statutory demand is paid
in-full.
To secure for the debt means to accept security for the debt.
To compound for the debt means to accept an arrangement for payment of the debt amount, or some
other amount.
The use of the word “reasonable” is an objective test rather than a subjective test, so care should be
taken when negotiating offers.
Paragraph 4 of the demand lets the debtor know that failure to comply with the statutory demand allows
the creditor to make an application to the Court to wind the debtor company up in insolvency.
Non-compliance with a statutory demand raises the legal presumption of insolvency. It is with the
assistance of that legal presumption that a creditor of an insolvent company can apply to wind it up.
Paragraph 5 lets the debtor company know that they can make an application to the Court for an order
setting aside the statutory demand (if they have sufficient grounds).
If the debtor company wants to set the demand aside, then strictly within the 21-day period, they must
apply to the Court, and the sealed application and supporting affidavit be served on the creditor.
Just leave paragraph 5 in the statutory demand and make no amendments.
8
The Warning Box
There is a requirement for the warning box to be included in the statutory demand. This warning box
puts the debtor company on notice that they could be placed into liquidation.
The omission of the warning box in a demand was discussed in McElligott v Boyce & Ors [2011] QCA
117 following New South Wales Court of Appeal case Randall v Chepan [2009] NSWSC 783 where
Muir J said:
The absence of the warning statement has been held not to require the setting aside of a
statutory demand.
Paragraph 6 states that the creditor company is also required to provide an address for service of the
application to set the demand aside.
The address for service must be in the same State as the address of the registered office of the debtor
company. This means that if a debtor is in Western Australia and you are in Queensland, then you must
have an address for service in WA.
An address in a different state as the debtor company has been deemed not to be a defect causing
substantial injustice, allowing the company to set the demand aside. In Daewoo v Suncorp-Metway
[2000] NSWSC 35 Austin J cited a number of authorities and said:
In the present case there is the clearest basis for concluding that no substantial injustice would
arise from the failure to specify an address in New South Wales. The proceedings have been
brought in New South Wales and the plaintiff appeared before me at the hearing with New
South Wales counsel and solicitors. I therefore reject the contention that a failure to specify an
address in New South Wales in the demand justifies the setting aside of the demand.
Again, not grounds for setting the demand aside, but it is just good practice to ensure that the Form
509H is complied with correctly.
The debt schedule must identify with precision the debt or debts upon which a statutory demand is
based. This is a statutory demand formal requirement.
It is vital that this section is completed correctly, as failure to correctly, or sufficiently particularise the
debt or debts, is a defect which will allow a debtor to set the demand aside.
Section 9 of the Corporations Act 2001 (CTH) defines a defect in a demand to mean:
"defect ", in relation to a statutory demand, includes:
9
(b) a misstatement of an amount or total; and
(c) a misdescription of a debt or other matter …
The defect must also cause substantial injustice.
In Topfelt Pty Ltd v State Bank of NSW Ltd [1993] FCA 589 Lockhart J said:
According to its ordinary usage a 'defect' means a lack or absence of something necessary or
essential for completeness; a shortcoming or deficiency; an imperfection.
In LSI Australia v LSI Holdings; LSI Australia v LSI Consulting [2007] NSWSC 1406, when talking
about the debt in a statutory demand, Austin J said:
If the demand is so vague or ambiguous that it fails to identify, to a reasonable person in the
shoes of a director of the debtor company, the general nature of the debt to a sufficient degree
that the director can assess whether there is a genuine dispute as to the existence or amount of
the debt, then there is a lack of something necessary for completeness, and therefore a defect
in the demand.
Whether this defect will cause substantial injustice will turn on the facts of each matter. Again, to be
sure that the demand is not set aside for this reason, you must sufficiently particularise the debt so that
the director of the debtor knows (or is deemed to know) what it relates to.
It Must Be Signed
The signing section is important because the demand must be dated and signed, with the person signing
to print their name, and state in what capacity they are signing.
Again, there are various cases which discuss what a person is, whether that person has capacity to sign
on behalf of the creditor, and more.
Tip – to save any difficulties, a solicitor for the creditor is an agent of the creditor, and as such
it has been deemed that they can sign on behalf of the creditor.
In Collins Bros Stationers Pty Ltd v Zebra Graphics Pty Ltd (1985) 10 ACLR 267 Gobbo J said:
It would seem to me that the document, where it is signed by a person describing himself as the
solicitor of the creditor, carries with it an assertion of agency. It would not seem necessary to
have explicit evidence of authority which is, as it were, claimed and prima facie made out on
the face of the document.
Otherwise, a sole director of the company can sign with authority of the creditor company
Alternatively, if there are more than one director, a director with a minute of a resolution giving him/her
authority to sign on behalf of the creditor company.
An omission of a signature has not been found not to be a defect which would cause substantial injustice.
10
However, again it is better that the statutory demand formal requirements are adhered to, as this will
save the costs of having to defend an application to set the demand aside.
The Notes
The final part of the demand is the notes. The notes provide some further information for the debtor
company.
An omission of the notes has been found to be a defect in the demand which does not cause substantial
injustice, and so does not allow the demand to be set aside.
Although statutory demand formal requirements are important, strict compliance with the form of the
statutory demand is not required.
In Quitstar Pty Ltd v Cooline Pacific Pty Ltd [2003] NSWCA 359 Sheller JA Hodgson JA McColl JA
said:
Although s.459E says that the demand must be in the form prescribed by the
regulations, s.25C of the Acts Interpretation Act indicates that substantial compliance is
sufficient, at least unless the contrary intention appears. It could be argued that the word
"must" indicates a contrary intention; but when one has regard to s.459J of the Corporations
Act, it does in my opinion follow that the legislation was not making strict compliance with the
form a prerequisite for validity
This has been followed in cases such as In the matter of Ege Foods Australia Pty Ltd [2014] NSWSC
983 and Inter Mining Pty Ltd v Lake Johnston Pty Ltd, in the matter of Lake Johnston Pty Ltd [2013]
FCA 915 amongst others.
Even though substantial compliance is enough, it is best practice to ensure that the statutory demand
formal requirements are 100% complied with.
As outlined above, some defects in the formal requirements of the demand will not allow the demand
to be set aside, but some will. They are:
1. The correct identification of the debtor and the creditor;
2. The correctness of the amount of the debt; and
3. Sufficiently described debt allowing the debtor to know what it relates to.
Otherwise, failure to comply with the statutory demand formal requirements may not be fatal to the
statutory demand, but they may cause you unnecessary costs and stress having to appear at the hearing
of the application to set the demand aside.
As you are attempting to wind a debtor company up in liquidation if they do not comply with your
demand, then this is a very serious action and should be treated as such.
11
In Topfelt Pty Limited v The State Bank of New South Wales Limited [1993] FCA 589 Lockhart J, in the
Federal Court of Australia, said:
It is not asking too much that creditors who issue statutory demands under the Corporations
Law should ensure that the demands are expressed in clear, correct and unambiguous terms.
If the creditors wish to have the benefit of the presumption of insolvency, the least they can do
is to tell the debtor companies in clear terms what amounts are due, whether they include
interest or not, and, if so, the amount.
So, once a statutory demand is correctly drafted and signed, the creditor has to then serve the demand
on the debtor company.
The service of a statutory demand is a vital step in the proceeding because if you incorrectly serve the
demand, the court may determine that service has not been effected, and the consequences of this could
be very serious, including a costs order may be made against you.
You have met the eligibility requirements to be able to serve a debtor company with a statutory demand,
and you have correctly completed the form of the demand. You are now ready to serve the demand on
the debtor company.
A stat demand is a creature of the Corporations Act 2001 (“the Act”) and so service of the demand is
prescribed in that act. Section 109X of the Act says:
(1) For the purposes of any law, a document may be served on a company by:
(a) leaving it at, or posting it to, the company's registered office; or
(b) delivering a copy of the document personally to a director of the company who resides in
Australia or in an external Territory.
Simple right?
Serving a statutory demand by post means that you simple post it to the company’s registered office, or
personal service on a director of the company.
Well, there are a number of pitfalls to navigate around, especially if you are dealing with a skilled
debtor, who may be taking steps to avoid service.
In some instances, a creditor may be ordered to pay the costs of the debtor company! We advise
contacting a dedicated, professional statutory demand lawyer for advice and assistance with serving a
statutory demand by post.
12
Leaving it at, or Posting it to, the Company's Registered Office
The first thing that you need to do is order a current extract from the Australian Securities and
Investment Commission (“ASIC”).
A current extract will provide you with all of the information you will need to serve a company.
A company’s registered office is an address on the extract under the heading Registered Office.
A registered office might be an accountant’s office, or a lawyer’s office.
Ensure that the address on the envelope is identical to the address on the extract. Once posted, when is
service deemed to have happened?
13
In any case, best practice when serving a statutory demand by post is to serve the statutory demand by
express prepaid post with a tracking identification number.
Proof of Delivery
That way you are able to prove delivery if there is direct evidence to show that delivery was made
correctly.
Alternatively, or as well as express post, attempt to get the debtor to confirm receipt (and therefore
delivery) of the demand.
Follow up with an email or a telephone call (if possible and/or reasonable) and you can annex evidence
of actual confirmation of delivery from the debtor to your affidavit.
Further in the alternative, although more expensive than a prepaid express post envelope, you could
also get your process server to deliver the letter to the address of the registered office.
We offer professional advice and assistance in all things related to statutory demands and serving a
statutory demand by post
In some instances, a creditor may be ordered to pay the costs of the debtor company!
We advise contacting a dedicated, professional statutory demand lawyer for advice and assistance.
If you are unable to be sure that service will be effected by post, or there are some problems with the
address for the registered office on the ASIC current extract, then you will need to engage a process
server to personally serve the director of the debtor company with the statutory demand.
The current extract has the names, addresses, date of birth of the company office holders, and so you
are able to personally serve the director (or directors) of the company personally at their home address.
However, this becomes more complicated if the director has moved and not updated their details with
ASIC.
Your process server will be trained and experienced in the service of documents and will know exactly
how to serve a statutory demand personally on the director of the debtor company.
If you need to know how to perform service of a statutory demand on a company interstate, for example
the registered office in interstate, or the director of the debtor company lives in another state, then you
will need to rely on the provisions of the Service and Execution of Process Act 1992 (CTH) ("SEPA").
Section 9 of SEPA says:
(1) Service of a process, order or document under this Act on a company is to be effected by
leaving it at, or by sending it by post to, the company's registered office.
14
(2) Without limiting the operation of subsection (1), a process, order or document may be
served on a company by delivering a copy of it personally to a director of the company who
resides in Australia.
Note that a statutory demand is not an initiating process and so does not need to comply with section
16 of SEPA which says:
Service is effective only if copies of such notices as are prescribed are attached to the process,
or the copy of the process, served.
Once you have completed the steps above, you (or your process server) will need to provide evidence
that service of the statutory demand has been effected.
More than likely the debtor will pay, or you may agree to settle or “secure or compound for that amount
or total to the creditor's reasonable satisfaction, within 21 days after the demand is served on the
company” as per section 459E(2)(c) of the Act.
Commonwealth Bank of Australia v Parform Pty Ltd [1995] FCA 1445 said:
To "compound" for a debt is to accept an arrangement for payment of the amount of the debt
or of a different amount
However, if the debtor company does nothing, then the company is presumed to be insolvent and you
can take steps to wind the debtor company up in insolvency.
15
In this instance then you will need to provide an affidavit of service of the creditor’s statutory demand
with the application to the Federal Court or Supreme Court of Queensland.
In your affidavit of service you will need to prove:
1. Evidence of the registered office (the extract);
2. Evidence of the address on the envelope;
3. Evidence of the tracking identification number on the envelope;
4. Evidence of the letter serving the documents;
5. Evidence of the documents served;
6. Evidence when and where the letter containing the documents was posted;
7. Evidence of delivery of the letter.
Even though you now know how to serve a statutory demand it is a complicated process which must be
conducted correctly or there could be very dire consequences.
It is vital that you get a professional solicitor with experience of service of documents to perform service
of a statutory demand.
Once served the debtor company will need to comply with the statutory demand.
We offer professional advice and assistance in all things related to statutory demands
A debtor must comply with a statutory demand if they are not going to attempt to set the statutory
demand aside, or ask the issuer to withdraw the demand.
To comply with a statutory demand is to either:
1. To pay to the creditor the amount of the debt or total of the amounts of the debts; or
2. To secure or compound for the amount of the debt or total of the amounts of the debts, to the
creditor's reasonable satisfaction.
This section will discuss what these points mean, and how they have been dealt with by the Courts, to
ensure that a debtor and creditor know how to comply with a statutory demand.
The Form of a statutory demand is Form 509H contained in Schedule 2 of the Corporations Regulations
2001 (CTH).
The Form says:
The creditor requires the company, within 21 days after service on the company of this demand:
(a) to pay to the creditor the * amount of the debt/ * total of the amounts of the debts; or
16
(b) to secure or compound for the * amount of the debt/ * total of the amounts of the debts, to
the creditor's reasonable satisfaction.
The salient issues when thinking about how to comply with a statutory demand are:
1. Within 21 days after service on the company;
2. Pay to the creditor the amount of the debt;
3. Secure or compound for the debt;
4. To the creditor’s reasonable satisfaction.
This article will discuss these matters further below.
The Courts have interpreted compliance with the 21-day time limit very strictly when discussing how
to comply with a statutory demand.
The only way that a debtor company can extend the time for compliance is if within the 21-day period
for compliance, the debtor company applies to the Court for an order setting aside the demand, and the
Court makes an order extending the time for compliance.
In all other cases, the Court has said that the 21-day time limit is strictly 21 days.
In Australian Mid-Eastern Club Ltd v Yassim (1989) 1 ACSR 399 payment of the demanded amount
was made after the expiration of the 21-day limit. At this point the winding up application had already
been made.
The creditor’s solicitor was instructed to return the money and continue on with the winding up
application. The creditor refused to accept the payment.
The creditor company had a good reason not to accept this payment, as there were other creditors of the
debtor company, and the payment may have been deemed a preference payment by any future
liquidator.
Meagher JA dismissed the appeal with costs.
Australian Mid-Eastern Club Ltd v Yassim (1989) 1 ACSR 399 has been followed in a number of more
recent cases.
In the matter of JKAM Investments Pty Limited [2016] NSWSC 1955 Brereton J said:
[t]he tender of payment of a debt underlying a demand, when refused, does not eliminate the
debt, and is no answer to a claim for it; at least unless there is a continued readiness to pay the
debt, coupled with an actual payment into court … a creditor may have a good reason for
refusing a tender where there is a likelihood of having to return the amount paid if a winding
up order is subsequently made.
In the matter of Gladstone Mortgagee No 1 Pty Ltd [2015] NSWSC 1551 Black J said:
Mr Spencer submits that GI and Mr Amargianitakis would have sound reasons for rejecting
the tender of monies that would probably have to be returned as a preference, implicitly on the
basis that GM1 is insolvent and may be wound up within the relation-back period for a
preference … [t]here is some force in that submission.
In Deputy Commissioner of Taxation v BK Ganter Holdings Pty Ltd [2008] FCA 1730 Logan J said:
17
When the history of [the debtor] to pay the debt after the filing of the winding up application is
recalled and that the company was … presumed to be insolvent the Deputy Commissioner
would have been entitled not to accept the cheque. A refusal to accept the cheque would not
have eliminated the debt in question.
In Deputy Commissioner of Taxation v Visidet Pty Ltd ACN 003 743 986, in the matter of Visidet Pty
Ltd [2005] FCA 830 Gyles J said:
The opinion of Meagher JA (at 403) indicates that the refusal to accept a tender, even a refusal
without justification, does not eliminate the debt in question. The relationship of creditor and
debtor still subsists, and the tender is no answer, unless there is a continued readiness to pay
coupled with actual payment into court.
A creditor will also have a right to wind up the debtor company, after the application is filed, even if
payment is subsequently made to the creditor.
In Deputy Commissioner of Taxation v Complete Liquid Transport Pty Ltd [2010] FCA 1067 Collier J
said:
The authorities are clear that the status of an applicant to seek a winding up order is determined
as at the time when the application was filed, and is unaffected by the subsequent payment of
the debt identified in the statutory demand to the creditor … The plaintiff therefore retains
standing to press for a winding up order, in relation to the defendant.
So, strict compliance with the 21-day time limit is required to pay, secure or compound for the debt.
Failure to adhere to this strict 21-day time limit raises the presumption that a debtor company is
insolvent.
Any attempts at payment after the presumption has been raised and a winding up application has been
made may be rejected by the creditor.
This is because if another creditor successfully winds up the debtor company, or a creditor is substituted
on the original winding up application, then that payment may be deemed to be a preference payment.
The securing of the debt means that the debtor company offers some security to the creditor for the
amount of the debt in the statutory demand.
This offer will usually be made to secure the compounding of the debt.
A creditor does not need to accept the proposed security, however if the creditor does not accept the
security, it has to do so reasonably and objectively.
18
A Court can determine that it was either reasonable or unreasonable to not accept security for the debt
contained in the statutory demand.
To compound for a debt is to accept some other form of payment of the debt.
In Commonwealth Bank of Australia v Parform Pty Ltd [1995] FCA 1445 Sundberg J said:
To "compound" for a debt is to accept an arrangement for payment of the amount of the debt
or of a different amount.
An "arrangement" has been defined to mean something falling short of an agreement.
In Commissioner of Taxation (Cth) v Lutovi Investments Pty Ltd (1978) 140 CLR 434 Gibbs and Mason
JJ said:
It is … necessary that an arrangement should be consensual, and that there should be some
adoption of it. But in our view it is not essential that the parties are committed to it or are bound
to support it. An arrangement may be informal as well as unenforceable and the parties may
be free to withdraw from it or to act inconsistently with it, notwithstanding their adoption of it.
So, essentially to compound for a debt means to accept an arrangement for payment, a meeting of the
minds between the debtor and the creditor.
A creditor does not need to accept the proposed arrangement, however if the creditor does not accept
the arrangement for payment, it has to do so reasonably and objectively.
A Court can determine that it was either reasonable or unreasonable to not accept an arrangement for
payment (or compounding) of the debt contained in the statutory demand.
The use of the word “Reasonable” has meant that the Creditor’s Reasonable Satisfaction is an objective
test, as opposed to “Creditor’s Satisfaction” potentially being a subjective test.
In Commonwealth Bank of Australia v Parform Pty Ltd [1995] FCA 1445 Sundberg J said:
I was referred to no authority on the phrase "to the creditor's reasonable satisfaction", and my
own researches have disclosed none. But I do not think the phrase is intended to enable the
creditor to be the sole judge of his satisfaction. The words "to the creditor's reasonable
satisfaction" seem to me to posit an objective test. In other words, where the debtor puts up a
proposal which the creditor rejects, it is for the court to decide whether in rejecting it the
creditor was acting reasonably in all the circumstances. If the test were wholly subjective, the
legislature would have employed the phrase "to the creditor's satisfaction".
This has been followed in more recent cases.
In the matter of Gladstone Mortgagee No 1 Pty Ltd [2015] NSWSC 1551 Black J followed the Parform
case by confirming:
19
The question whether the debt was secured or compounded to GI’s and Mr Amargianitakis’
reasonable satisfaction is determined on an objective test.
In Frontlink Pty Ltd v The Commissioner of State Revenue, Victoria [2015] VSC 329 Efthim AsJ cites
the Parform case and makes an objective determination by saying:
Here, the Commissioner does not want the security that is being offered, and one can presume
that is because he has sufficient security. Objectively it would be reasonable for him not to
accept the security, as it appears to add little if nothing at all to the security he already has.
In South East Asia v It and Law [2000] NSWSC 1036 Master Macready decided that:
There is no offer of security and there is no suggestion that there is cash available now by way
of bank cheque for instance to make the first payment. All it says is pay it immediately. That
has to be seen in the light of the history of the matter where, prior to the issue of the first demand
there were promises of payment which were not honoured. Accordingly, having regard to the
history, I would have thought it was not unreasonable to refuse the offer to compound.
If a debtor company does not comply with a statutory demand, apply to set the demand aside, request
that the issuer withdraws the demand, within the strict 21-day time limit, then the company will be
presumed to be insolvent.
It is based upon that presumption of insolvency that a creditor can apply to wind the debtor company
up.
It is vital that you get legal advice from a suitably qualified statutory demand solicitor as soon as you
receive the demand. Time is very much of the essence, as 21-days means 21-days!
We offer professional advice and assistance in all things related to statutory demands
The 21-day time limit for Statutory demands means that you must apply to set the demand aside or
comply with the demand within 21 days.
The Courts have interpreted compliance with the 21-day time limit very strictly.
Failure to comply with the 21-day time limit for compliance for statutory demands can have very
serious consequences for the debtor company.
Failure to apply to set aside statutory demands and serve the documents can mean that your application
is void.
This part of this guide explains all you need to know about the 21-day time limit for a statutory demand
and how the Courts have decided this issue since David Grant.
20
21-day time limit for Compliance with Statutory Demands
If a company has been served with a statutory demand, then the company has 21 days after the statutory
demands are served to either:
1. Pay the debt (or debts) on the demand; or
2. Apply for the demand to be set aside; or
3. Ask the issuer to withdraw the demand; or
4. Secure or compound for that amount or total to the creditor's reasonable satisfaction.
To “compound” for the debt means:
To “compound” for a debt is to accept an arrangement for payment of the amount of the debt
or of a different amount - Commonwealth Bank of Australia v Parform Pty Ltd [1995] FCA
1445.
Section 459F of the Corporations Act says:
(2) The period for compliance with a statutory demand is:
(a) if the company applies in accordance with section 459G for an order setting aside the
demand:
(i) if, on hearing the application under section 459G, or on an application by the company
under this paragraph, the Court makes an order that extends the period for compliance with
the demand--the period specified in the order, or in the last such order, as the case requires,
as the period for such compliance; or
(ii) otherwise--the period beginning on the day when the demand is served and ending 7 days
after the application under section 459G is finally determined or otherwise disposed of; or
(b) otherwise--21 days after the demand is served.
The Courts are unable to extend time for compliance with statutory demands, absent an order contained
in the decision upon the hearing of an application to set aside a statutory demand pursuant to section
459G of the Corporations Act.
This was the decision of the High Court in Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation
Limited [2008] HCA 9 where the Court said:
Unless the contrary intention appears in the Act, the power to extend the period for compliance
is to be understood as including power to extend it even if the period has ended. But there are
several features of Pt 5.4 of the Act which lead to the conclusion that a contrary intention does
appear.
Broadly, the Corporations Act allows for the Court to extend the period for compliance with a time
requirement under the Corporations Act.
Section 9 of the Corporations Act says:
Unless the contrary intention appears … "extend" in relation to a period … includes further
extend; and has a meaning affected by section 70.
Section 70 of the Corporations Act says:
21
Where this Act confers power to extend the period for doing an act, an application for the
exercise of the power may be made, and the power may be exercised, even if the period, or the
period as last extended, as the case requires, has ended.
However, what the High Court said in Aussie Vic Plant Hire was that Part 5.4 of the Corporations Act,
being the part that deals with statutory demands (amongst other things), a contrary intention did in fact
appear.
In the joint judgment of Gleeson CJ, Hayne, Crennan and Kiefel JJ the High Court said:
If the period for compliance with a statutory demand has expired, the Act does not permit the
making of an order extending the period for compliance.
This decision has been followed in the Queensland Court of Appeal.
In Palmer Petroleum Pty Ltd v BGP Geoexplorer Pty Ltd [2016] QCA 149 the Queensland Court of
Appeal said:
If the company applies in accordance with s 459G for an order setting aside the demand, there
are then two possible periods for compliance. One possibility results from an order by the court
for the extension of the period for compliance. The other possibility is where the period is not
extended by the court, in which case, the period for compliance ends seven days after the
application to set aside the demand is finally determined or otherwise disposed of.
McMurdo JA then went on to say (with Fraser JA, Philippides JA agreeing):
There is no power to extend the period for compliance once that period has expired. The High
Court so held in Aussie Vic Plant Hire Proprietary Limited v Esanda Finance Corporation
Limited [2008] HCA 9. Clearly then, the period for compliance expired … at which point, the
demand was still in effect and the appellant had not complied with it, with the consequence that
the appellant is taken to have failed to comply with the demand.
22
If a company has been served with statutory demands with an affidavit in support (not a judgment in
support), then the company has 21 days to:
1. Apply to the Federal Court or the Supreme Court for an order setting the statutory demand
aside; and
2. Serve a sealed copy of the application and the supporting affidavit on the person who served
the statutory demand.
In David Grant the High Court noted that the phrase "may only" was not used in a discretionary sense
but was used in a "facultative and permissive sense". The Court said (at 28):
... the use in s 459G(2) of the term "may" does not give rise to the considerations which apply
where legislation confers upon a decision-maker an authority of a discretionary kind and the
issue is whether "may" is used in a facultative and permissive sense or an imperative sense
(13). Here, the phrase "(a)n application may only be made within 21 days" should be read as
a whole. The force of the term "may only" is to define the jurisdiction of the court by imposing
a requirement as to time as an essential condition of the new right conferred by s 459G.
The Court decided that a Court will only have jurisdiction to hear an application pursuant to 459G if it
is made and served within the 21-day time-frame.
The 21-day time limit to apply to set aside a statutory demand has been interpreted very strictly. If you
have been served with a demand and need to set it aside, it is vital that you engage a suitably qualified
professional
A good place to start when looking at the 21-day time limit to set aside a statutory demand is the High
Court of Australia case of David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43
who said:
The court may make an order extending the period for compliance with the statutory demand.
If the company applies "in accordance with section 459G" to set aside the demand, then an
order extending the time for compliance may be made.
And then went on to say:
The requirement in s 459G that the application to the court for which it provides be made only
within 21 days after service of the demand … These reasons lead also to the rejection of the
reliance by the appellants upon s 70 … However, the Law does not confer a power to extend
the period within which an application may be made under s 459G.
The reason for the strictness of the interpretation of the legislation is because of the intention of the
legislature when drafting the Corporate Law Reform Act 1992 (CTH). David Grant said that:
The provisions of the new Pt 5.4 constitute a legislative scheme for quick resolution of the issue
of solvency and the determination of whether the company should be wound up without the
interposition of disputes about debts, unless they are raised promptly.
23
The Court in David Grant decided that one of the purposes of the amendments which evolved into what
we use today was for the quick resolution of solvency issues, unless disputes are promptly raised.
The High Court in David Grant also specified the manner in which a 459G application is to be
made. The Court said:
... an application is made in accordance with s 459G only if, within those 21 days, a supporting
affidavit is filed and a copy thereof and of the applications are served
So, this essentially means that if a debtor company wants to apply to set a statutory demand aside, the
application and supporting affidavit must be filed in the Court, and a sealed copy of both must be served
on the creditor within 21-days after being served with the statutory demand.
If a company is served with a statutory demand, then the only power that the Court has to extend the
time for compliance is pursuant to a validly filed and served application to set aside the statutory
demand.
In all other cases, the Courts have held that a company must adhere strictly with the 21-day time for
compliance with statutory demands.
So, this means that from the day that a company is served with a statutory demand, the company must,
within 21 days do one of the following:
1. Pay the amount on the statutory demand or demands; or
2. Compound for that amount to the creditor's reasonable satisfaction; or
3. Get in writing from the issuer, a notice that they withdraw the demand; or
4. Apply to the Court for an order setting aside the statutory demand.
Care must be taken. For example, if a company has requested that the issuer withdraws the demand,
and the issuer does nothing for two weeks, then the company will only have one (1) week to make the
application to set the demand aside.
The application to set a statutory demand aside must be drafted, filed and a sealed copy served before
the expiration of the 21-day time limit.
In Obiter in David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43, quoting Sheller
JA in Re J and E Holdings Pty Ltd (1995) 17 ACSR 319, Gummow J said:
No doubt, in some circumstances, the new Pt 5.4 may appear to operate harshly … In particular
… the drastic commercial consequences which may follow the issue of process for winding up
and to the inability of a company, which for good reason had been late in filing or serving an
application, to set aside the statutory demand.
The 21-day time limit to apply to set aside a statutory demand has been interpreted very strictly. If you
have been served with a demand and need to set it aside, it is vital that you engage a suitably qualified
professional advice.
We offer professional advice and assistance in all things related to statutory demands
24
Service of Statutory Demands over the Christmas Period
Arguably, a good example of this can be seen in J & K Homes Pty Ltd v Evans Lawyers [2017] QSC
24 where Evans Lawyers issued J & K Homes Pty Ltd with a statutory demand on 19 December 2016,
meaning that the time for compliance, or the time to file and serve an application and affidavit to set
aside the demand, was 9 January 2017.
The defendant argued that they were disadvantaged because over the Christmas period the Courts were
closed.
Citing David Grant & Co Pty Ltd the Supreme Court of Queensland said:
As the applicant did not file and serve its application within the 21-day period required, the
Court has no power to make an order setting aside the statutory demand.
The serving, and subsequent compliance with statutory demands, over the Christmas period has been
discussed in a number of different cases.
In SV Steel Supplies Pty Ltd v. Palwizat [2007] QSC 24 service of the statutory demand was made by
placing the documents under the door of the registered office of the debtor company on Friday 22
December 2006.
The office was closed for Christmas between 12 p.m. on 22 December 2006 until 8.30 a.m. on Monday
8 January 2007, being 17 days, in which notice was given by a sign on the door of the office.
The applicants made an application to set aside the statutory demand alleging that service was not
affected on the registered office until the document was brought to the attention of the applicant.
After reviewing the authorities, following Fancourt v Mercantile Credits Ltd [1983] HCA 25 amongst
others, the Court decided that delivery had been made to the registered office, and dismissed the
application to set the demand aside. The Court said:
There can be no doubt that the notice has been served in accordance with s.109X of the
Corporations Law. Nor can there be any doubt that the notice came to the company's notice
although some significant time after the service was effected in accordance with s.109X. Nor
in my view is there anything in what the respondent did in giving the notice nor in her dealings
with the applicant which could support a claim that service of the statutory notice in the way
and at the time that it was effected constitutes an abuse of process.
In Bluechip Development Corporation (Cairns) Pty Ltd v PNP Realty Pty Ltd [2009] ACTSC 33 the
application to set aside a statutory demand and supporting affidavit was rejected by the registry for non-
compliance.
By the time the registry sent a requisition setting out the respects in which they did not comply with the
Rules, the 21-day time for compliance had passed.
The demand was served on 18 December 2008, but the application was not filed until 5 January 2009.
The respondents filed an application for an order that the applicants be wound up for failure to comply
with the statutory demand.
25
The applicants lodged an application for an injunction restraining the respondents from relying on the
statutory demand, on the ground of abuse of process.
The Court said:
I am satisfied on the facts that the statutory demand was validly served. It was suggested by
counsel that PNP or its solicitors deliberately delayed serving the statutory demand until just
before Christmas, so as to make it practically difficult or perhaps impossible for BDC to make
an application to set it aside in time. I am not satisfied that there was any deliberate plan to
that effect in the minds of those giving instructions on behalf of PNP, or its solicitors.
Master Harper then ruled that:
In those circumstances the application ... by interlocutory process ... in the winding-up
proceedings will be dismissed with costs
In Career Training on Line Pty Ltd v B E S Training Solutions Pty Ltd; v Buckland [2010] NSWSC 460
the issuer of the statutory demand had personally served the demand on 23 December 2009 by sliding
it under the door of the registered office (identified by the ASIC current extract).
The registered office was an accountant’s office. The accountant had left for the day and was not back
at work until 29 December 2009, being the first business day after the Christmas break.
The question for the Court was whether the demand was served on 23 December or on 29
December. Barrett J held that:
Service of each statutory demand occurred on 23 December 2009 … The filing of each
originating process and supporting affidavit on 19 January 2010 (and subsequent service
thereof) therefore occurred outside (and not “within”) the period of 21 days referred to in s
459G(2) and s 459G(3) … Consistently with David Grant & Co Pty Ltd v Westpac Banking
Corporation Ltd, the originating process in each proceeding must be dismissed. It will also be
ordered, in each case, that the plaintiff pay the defendant’s costs of the proceedings.
So even if nobody is in the office of the accountant, or the solicitor, at the address for service, if service
has been performed correctly, and it is not deemed to be an abuse of process, then service is deemed to
have occurred on the date of delivery, not the date of receipt of statutory demands.
Even if the office is closed over Christmas!
The 21-day time limit to apply to set aside a statutory demand has been interpreted very strictly.
If you have been served with a demand and need to set it aside, it is vital that you engage a suitably
qualified professional
26
It seems to me that it must follow that, for the purposes of determining whether this application
was filed within time, the effect of s36 of the Acts Interpretation Act must be taken into account.
The effect of s36 of that Act is that, although a count of 21 days from the date of service, being
19 February 2001, would indicate that the deadline for filing the application and affidavit was
12 March 2001, because that date was a public holiday in the Australian Capital Territory, the
expiry of 21 days must be taken to the next working day, being 13 March 2001.
For an application setting aside statutory demands, the application and supporting affidavit must be
filed in the Court, and then a sealed version is to be served.
In Cooloola Dairys Pty Ltd v National Foods Milk Ltd and Alait Pty Ltd v National Foods Milk Ltd
[2004] QSC 308 the Supreme Court of Queensland said:
The authorities establish that the copy of the application served on the respondent must be such
as to show that it is a replication of the application which has been filed in the court. To do that
it must show the action number given it by the court and it must show the return date for the
hearing of the application. It must, also, I think, show the seal of the court to indicate that there
are curial proceedings on foot.
In Dominion Capital Pty Limited v Pico Holdings Inc [2001] VSC 458 the Court said:
In my opinion, the Court has no jurisdiction to hear the application when it and the supporting
affidavit have not been effectively served "in accordance with" the requirements of s.459G(2)
and (3)
In Complete Windscreen Service Nominees Pty Ltd v Nielsen and Moller Windscreens Pty Ltd (1995)
121 FLR 178 the Court decided that an application to set a statutory demand aside filed and served
within 21 days, but the affidavits filed and served outside the 21 days, was not valid. They said:
If the steps contemplated by s 459G are not taken within the 21-day time period, it may be said
that there is no application under Pt 5.4a, and accordingly no question of defect or irregularity
falls for consideration.
The authorities show that an application to set aside statutory demands, and accompanying affidavit
must be filed in the Court, sealed with the Courts seal, show the matter number given it by the Court,
and include the return date for the hearing.
Then, this version is to be properly served on the issuer of the statutory demands – all within the 21-
day time limit for it to be effective.
Failure to do so within 21 days, and the company will be presumed to be insolvent.
If the application to set aside is filed and served before the 21-day time limit, the clock stops running
until the Court gives its judgment.
The 21-day time limit to apply to set aside a statutory demand has been interpreted very strictly. If you
have been served with a demand and need to set it aside, it is vital that you engage a suitably qualified
professional.
27
Abuse of Process and Failure to Comply with Statutory Demand
In some instances, the Courts have allowed injunctive relief if the debtor company can successfully
prove that the issuance of statutory demands was for an improper purpose and is an abuse of process.
This still does not allow the company to file an application to set aside a demand after the 21-day period
but may allow the company to avoid the consequences of the statutory demand.
However, the authorities say that this is very difficult to do.
In House of Tan Pty Ltd v Beachiris Pty Ltd (1996) 14 ACLC 1536 Brownie J said:
(i) A court has power to dismiss or stay winding up proceedings as an abuse of process in
appropriate cases … (ii) The effect of the enactment of CL Pt 5.4 is to limit the exercise of that
power in cases to which CL Pt 5.4 applies ... (iii) In a small number of cases, the power will
still exist – although the factual matrix would need to make it clear that CL s 459S has no
operation.
This guide does not focus on winding up applications, however examples of cases where a winding-up
application based upon non-compliance with statutory demands have been held to be an abuse of
process include:
Victorian Workcover Authority v Barroaghan Pty Ltd [2001] VSC 413;
Pacific Communication Rentals Pty Ltd v Walker (1993) 12 ACSR 287; and
Roberts v Wayne Roberts Concrete Constructions Pty Ltd [2004] NSWSC 734.
As you can see above, the Courts have interpreted the time limit for compliance with statutory demands,
or the time to file and serve an application to set a statutory demand aside, very strictly.
If you have been served with statutory demands, it is vital that you seek legal advice and assistance as
soon as possible, as time is very much of the essence.
A company served with a statutory demand in Queensland can write to the issuer of statutory demands
and request that they withdraw the statutory demand.
The issue as to whether a statutory demand can be withdrawn was settled in Australia in the case of
Cempro Pty Ltd v Dennis M Brown Pty Ltd (1994) ACSR 628 and then affirmed In the matter of
Chameleon Mining NL; Chameleon Mining NL v Atanaskovic Hartnell [2009] NSWSC 602.
However, whatever a company chooses to do with the statutory demands, it must adhere to the strict
21-day time limit given in the Corporations Act.
If the issuer of statutory demands do not respond to the request for withdrawal, then the statutory
demands remain on-foot, and the debtor company still needs to do whatever they intend to do before
the 21 day limit.
28
The 21-day time limit to apply to set aside a statutory demand has been interpreted very strictly. If you
have been served with a demand and need to set it aside, it is vital that you engage a suitably qualified
professional
A debtor may not need to comply with a statutory demand if the demand is withdrawn by the creditor
issuing a statutory demand.
Have you ever wondered how to withdraw a statutory demand or if a statutory demand can be
withdrawn?
What is the process in withdrawing a statutory demand? Why require the issuer to withdraw rather than
set it aside?
This section of the guide will explain everything you need to know about withdrawing statutory
demands, when you should do it (or request it) and why you should do it (or request that it be done).
The issue as to whether a statutory demand can be withdrawn was settled in Cempro Pty Ltd v Dennis
M Brown Pty Ltd (1994) ACSR 628 where Von Doussa J said:
In my view if the party serving a notice of statutory demand under s 459E, within the time
limited by the notice for compliance therewith, arms the recipient company with a document in
writing saying that the statutory demand is unequivocally withdrawn, the notice thereafter has
no further force or effect, and it is not necessary to prevent presumed insolvency arising at the
expiration of the period for compliance to obtain an order of the court formally setting aside
the notice. I consider that the unconditional withdrawal of the notice of statutory demand means
that there is no longer a demand to be complied with, and at the expiration of the time limited
for compliance, there can be no failure to comply with the demand. The fact that the withdrawal
is evidenced by a document in writing given to the recipient company ensures that the company
is in possession of proof of the withdrawal should any question thereafter arise as to the fate of
the statutory demand.
You must be mindful however that the recipient of a statutory demand only has twenty one (21) days
in which to apply to set the demand aside. Section 459G of the Corporations Act states that:
(1) A company may apply to the Court for an order setting aside a statutory demand served on
the company.
(2) An application may only be made within 21 days after the demand is so served.
(3) An application is made in accordance with this section only if, within those 21 days:
(a) an affidavit supporting the application is filed with the Court; and
(b) a copy of the application, and a copy of the supporting affidavit, are served on the person
who served the demand on the company.
29
So, while waiting for the sender or the sender's solicitors to agree to withdraw the statutory demand, a
debtor company must yourself time to draft, file and serve a copy of your application and supporting
affidavit on the issuer.
If you fail to get this application filed and served on time, you may be facing the presumption of
insolvency, which could have very serious consequences.
In Chameleon Mining NL v Atanaskovic Hartnell [2009] NSWSC 602 the Court
considered Cempro above and asked if a withdrawal of a statutory demand must be made in writing, or
can an oral withdrawal suffice. Austin J said:
Although Von Doussa J envisaged withdrawal in writing, it appears from his observations that
he regarded writing as desirable for the purpose of proving the withdrawal, rather than
necessary for the validity of the withdrawal. I can see no reason for insisting upon writing as a
prerequisite to validity. In my view, if the court is satisfied, on the evidence, that a statutory
demand has been unequivocally withdrawn within the notice period, the withdrawal is valid
and effective notwithstanding the absence of any document, and it is unnecessary for the
company to apply for an order setting the demand aside.
A statutory demand can be withdrawn orally however, you will need to be able to prove that this
withdrawal was made.
It is good to know that you may be able to rely on Chameleon Mining if you need to, but more
importantly, it shows that it is best practice to get the "unequivocal withdrawal in writing" so you are
able to tender this as evidence if needed, especially as the consequences of not responding to the
statutory demand are so high.
How a Statutory Demand can be withdrawn is based upon the same factors for setting aside a stat
demand.
If the demand was made with an affidavit in support, and you can raise a good argument that the demand
can be set-aside then you can write to the issuer of the demand prior to the application setting it aside.
To get a demand set-aside, you will need to prove one or more of the following:
1. There are formal defects in the statutory demand; and/or
2. There is/are a genuine dispute(s) about the existence or quantum of the debt; and/or
3. You have any offsetting claims; and/or
4. There is some other reason, like the demand was not served correctly.
When considering how to withdraw a statutory demand, if you can successfully argue one or more of
these factors above, then prior to making the application to set the demand aside, write without prejudice
save as to Costs to the issuer of the demand, state the reasons why this application will be successful,
and demand that the statutory demand be withdrawn.
30
Costs of the Application to Set-Aside
In relation to how to withdraw a statutory demand, the purpose of this letter is to give the issuer notice
of the intended application and to invite them to agree in writing to unequivocally withdraw the
statutory demand.
If they do not agree to withdraw the stat demand, then put them on notice that you will be put to the
substantial expense of preparing and arguing the application on a contested basis (including Counsel's
fees), in which case, you should reserve your right to tender this letter to the court at the hearing of that
application, in support of a submission that the issuer of the statutory demand be ordered to pay the
costs of the application on an indemnity basis.
If you are considering applying to set aside statutory demand or more than one statutory demand, it is
vitally important that you engage a professional statutory demand solicitor.
Time is very much of the essence and it is very important that you engage someone who knows exactly
what they are doing.
Failure to take a step correctly could leave you in a far worse position, costing thousands of dollars, for
example attempting to rebut the presumption of insolvency or being forced into liquidation.
We offer professional advice and assistance in all things related to statutory demands
There are a number of other issues to consider when a party is considering serving a creditor's statutory
demand for payment of debt, or if a party has been served with a statutory demand.
One of the main risks of a statutory demand is the potential exposure to a costs order if the debtor
company is successful in setting the stat demand aside.
If the debtor company asks the issuer to withdraw the demand, and the issuer does not, then the debtor
company may apply to the Court for an order that the demand be set aside. If they are successful, then
the Court may order the issuer to pay the costs of the application.
Failure to comply with statutory demand is the most common cause of presumption of insolvency.
So, another risk is that liquidation may not be the best option for creditors to get paid. There may be
other options which would potentially have more benefit to creditors.
31
Reducing Risk of Statutory Demand Qld
You can reduce the risk of a costs order being made against you by simply asking the issuer to withdraw
the statutory demand. This will also save you a lot of money in legal fees.
The creditor can reduce risk further by getting a court judgement against the company initially to obtain
payment for the debt before they issue a demand.
It can be costly and lengthy during the civil litigation process, so this is a consideration. A creditor can
sometimes end up paying more than the debt is actually worth trying to recover it.
Creditors should usually not use a creditor's stat demand for the payment of debt where there’s a dispute
about the amount of money owed to them and try to avoid court proceedings.
An alternative to enforcing a judgment against a company using a statutory demand is to attempt to get
an enforcement warrant.
In some cases, a creditor’s statutory demand for the payment of money may not be the best option.
You should seek legal advice as to whether your statutory demand is right for your particular
circumstances.
Weighing up the risk v the reward, it may be better in your matter to get a judgment in the Court first
before issuing the statutory demand.
Companies and creditors have risks when dealing with debts. This is why it is usually a good idea to
enter into negotiation for a payment of the debt or a portion of the debt.
This is what is meant for compound for the debt.
This can result in the withdrawal of the statutory demand, and a deed for the acknowledgement of debt
with a repayment plan and some security – for example.
If a creditor does accept a payment plan, or compounds for the debt, then this can satisfy the
requirements of the statutory demand, so care should be taken while negotiating within the 21-day time
period.
Careful consideration needs to be taken when issuing a statutory demand against any company without
a judgement. Creditors must assess their risk of added costs and that they have a legitimate claim for
debt owed to them. They must also make sure that the claim cannot be disputed by the company.
32
Statutory Demand FAQ Questions
Once served a debtor company has 21-days to comply, set aside, or request a withdrawal of the
demand. If they fail to do so then this raises the legal presumption that they are insolvent.
There is a three-month time limit to presumption of insolvency. This means that the presumption of
insolvency last for three months, starting on the 22nd day.
A creditor can apply to wind up the company within that three-month period and gain the benefit of that
legal presumption. The most common reason for company liquidation is insolvency.
Yes. If a debtor company has grounds to set a statutory demand aside then they can request that the
demand be withdrawn.
If the issuer does not withdraw the demand, and the debtor company is successful in obtaining an order
setting it aside, then the issuer may be ordered to pay the costs of the application.
An issuer should give serious consideration to withdrawing the demand if there are reasonable grounds.
A statutory demand is not an originating document and so there is no need for personal service.
A demand is served correctly if served in accordance with section 109X of the Corporations Act.
The most common way that service of a demand is effected is by mailing it to the registered office of
the debtor company by pre-paid post.
However, a demand can also be served by leaving it at the registered office, or personally delivering it
on the director of the company.
33
How can I get money owed to me?
After service of a statutory demand on the debtor company they only have 21 days to pay the debt or
secure or compound for the debt.
In our experience a debtor company that can raise funds will usually do so rather than the risk of being
wound up and a liquidator appointed.
So, they will either pay, or attempt to compound for the debt with some security. Either way this is the
way that a creditor will get paid.
A winding up order is an order from the Court that the debtor company we wound up in insolvency.
A winding up order will appoint a liquidator and make an order as to costs of the winding up application.
To be eligible to issue a statutory demand you must satisfy the requirements below:
1. You must be a creditor of the company;
2. The debt must be $2,000.00 or more;
3. The debt must be due and payable at the time of issue; and
4. There should not be any genuine dispute.
If you tick “yes” to the above, then you are eligible to issue a statutory demand.
A debt for a statutory demand is most commonly a liquidated amount that is presently due and payable
by the debtor to the creditor.
In most cases this is a debt relating to goods and/or services provided to the debtor company by the
creditor and not paid for.
Unliquidated debts, prospective or contingent debts are not debts which allow a creditor to issue a
statutory demand.
The minimum debt amount of $2,000.00 is required for a creditor to be eligible to issue a statutory
demand for payment.
So if a creditor has a debt equal to or more than $2,000.00, or has a number of debts equal to or more
than $2,000.00 then a creditor can issue a statutory demand.
34
What Form Should a Statutory Demand Take?
If a debtor company ignores the statutory demand, then there are two main implications:
The debtor company is presumed to be insolvent which assists the creditor in the winding up application,
or will put the debtor company to considerable costs attempting to resist the winding up application;
and
Section 549S says that the company is likely unable to rely on the matter it could have relied on if
setting aside the demand, when resisting the winding up application.
If there was a genuine dispute, etc. then the company may not be given leave to raise it.
If the 21-day time for compliance with the demand has passed the Courts have been very clear that the
Court cannot extend the time for compliance.
If an application to set the demand aside has been correctly drafted, filed, sealed, and served in time,
then the Courts can order that the debtor company have some more time to comply with the demand.
In all other instances the Courts have ruled that strict compliance with the 21-day time limit is required
or it is unable to be extended.
A creditor can issue a statutory demand with either a judgment in support or an affidavit in support.
If you have been through the Courts and obtained a judgment; or you have been through QCAT or
adjudication, and the QCAT decision or adjudication decision has been registered in the Court; then
you can issue a statutory demand.
35
However, you can also serve a statutory demand with an affidavit in support.
The affidavit must be in the required Form 7 and swear/affirm to all of the requirements needed.
One of the only requirements to make an application for a winding up order is that the issuer be a
creditor of the debtor company.
Section 462(2)(b) of the Corporations Act 2001 says:
Any one or more of the following may apply for an order to wind up a company: (b) a creditor
… of the company
However, without the presumption of insolvency to assist, it may be more difficult and more expensive
to get the Court to make the order.
If the debtor does not comply with the statutory demand, then they are presumed to be insolvent.
This presumption of insolvency lasts for three (3) months in which time the creditor can apply to wind
the company up.
36
The Form 509H
Below is a form 509H taken from Schedule 2 of the Regulations for your information only. If you want
to be sure that you have the correct version, go to the Regulations and get it from there.
Form 509H
(paragraph 459E(2)(e))
Corporations Act 2001
CREDITOR'S STATUTORY DEMAND FOR PAYMENT OF DEBT
To ( name and A.C.N. or A.R.B.N. of debtor company) of (address of the company's registered office)
1. The company owes ( name) of ( address) ( "the creditor")
* the amount of $( insert amount), being the amount of the debt described in the Schedule.
* the amount of $( insert total amount), being the total of the amounts of the debts described in the
Schedule.
* 2. The amount is due and payable by the company.
* 2. Attached is the affidavit of ( insert name of deponent of the affidavit) , dated ( insert date of
affidavit), verifying that the amount is due and payable by the company
3. The creditor requires the company, within 21 days after service on the company of this demand:
(a) to pay to the creditor the * amount of the debt/ * total of the amounts of the debts; or
(b) to secure or compound for the * amount of the debt/ * total of the amounts of the debts, to the
creditor's reasonable satisfaction.
4. The creditor may rely on a failure to comply with this demand within the period for compliance set
out in subsection 459F(2) as grounds for an application to a court having jurisdiction under the
Corporations Act 2001 for the winding up of the company.
5. Section 459G of the Corporations Act 2001 provides that a company served with a demand may
apply to a court having jurisdiction under the Corporations Act 2001 for an order setting the demand
aside. An application must be made within 21 days after the demand is served and, within the same
period:
(a) an affidavit supporting the application must be filed with the court; and
(b) a copy of the application and a copy of the affidavit must be served on the person who served the
demand.
A failure to respond to a statutory demand can have very serious consequences for a company.
In particular, it may result in the company being placed in liquidation and control of the
company passing to the liquidator of the company.
6. The address of the creditor for service of copies of any application and affidavit is (insert the address
for service of the documents in the State or Territory in which the demand is served on the company,
being, if solicitors are acting for the creditor, the address of the solicitors).
SCHEDULE
37
Description of the debt Amount of the debt
(indicate if it is a judgment debt, giving the name of the court and the date of the order)
* Total Amount
Dated:
signed:
Print name: capacity:
Corporation or partnership name (if applicable):
NOTES:
1. The form must be signed by the creditor or the creditor's solicitor. It may be signed on behalf of a partnership by a partner,
and on behalf of a corporation by a director or by the secretary or an executive officer of the corporation.
2. The amount of the debt or, if there is more than one debt, the total of the amounts of the debts, must exceed the statutory
minimum of $2,000.
3. Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that:
(a) verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and
4. A person may make a demand relating to a debt that is owed to the person as assignee.
5. This form was amended in 2006 as part of amendments of the Corporations Regulations 2001 . For the period of 12 months
after the commencement of those amendments a person may comply with paragraph 459E(2)(e) of the Corporations Act 2001
in relation to a statutory demand for payment of debt by using:
(a) the version of this form that was in force immediately before the commencement of the amendments; or
* Omit if inapplicable
38
The Form 7
Below is a Form 7 being for your information only. If you want a current up-to-date version, then you
can download it from the Federal Court website.
[Name of creditor(s)]
Creditor(s)
I, [name] of [address and occupation], *say on oath/*affirm [or *make oath and say/*solemnly and
sincerely declare and affirm]:
1 I am [state deponent’s relationship to the creditor(s), eg, ‘the creditor’, ‘(name), one of the
creditors’, ‘a director of the creditor’, ‘a director of (name), one of the creditors’] in respect of
*a debt of $[amount]/*debts totalling $[amount] owed by [name of debtor company] to *it/*them
relating to [state nature of debt, or debts, ensuring that what is stated corresponds with the
description of the debt, or debts, to be given in the proposed statutory demand, with which this
affidavit is to be served on the debtor company].
2 [If the deponent is not the creditor, state the facts entitling the deponent to make the affidavit, eg
‘I am authorised by the creditor(s) to make this affidavit on its/their behalf].
3 [State the source of the deponent’s knowledge of the matters stated in the affidavit in relation to
the debt or each of the debts, eg ‘I am the person who, on behalf of the creditor(s), had the
dealings with the debtor company that gave rise to the debt’, ‘I have inspected the business
records of the creditor in relation to the debtor company’s account with the creditor’].
4 *The debt/*The total of the amounts of the debts, mentioned in paragraph 1 of this affidavit, is
due and payable by the debtor company.
5 I believe that there is no genuine dispute about the existence or amount of the *debt/*any of the
debts.
*Sworn/*affirmed at: [place of swearing or affirmation] on [date]
OR
*Sworn/*affirmed by the above-named deponent at: [place of swearing or affirmation] this day
of [month] [year]
...................................
Signature of deponent
Before me:
39
person before whom deponent
swears or affirms affidavit
Note The form of the opening words and the jurat of this affidavit may be changed to
conform to the form of affidavit used in a particular State or Territory — see rule 2.6.
40