Debt Recovery - The effects of being served with a Creditors Statutory Demand

It is Monday morning and you have just arrived in the office and are ready to attend to the day’s business. As you go through your “In” tray you notice that in amongst the usual collection of junk mail and bills there is a document addressed to your company entitled “Creditors Statutory Demand” demanding payment of an amount within 21 days. What does this mean for your company and what should you do?

What is a Creditors Statutory Demand?

A Creditors Statutory Demand is a statutory mechanism under the Corporations Act 2001 allowing a creditor to exercise its right to demand payment from a debtor without the need to commence legal proceedings.

It is very important that a Creditors Statutory Demand once received is not ignored. The Corporations Act 2001 provides that a failure by a company to comply with the Creditors Statutory Demand is presumed to be an act of insolvency and a creditor may make an application to the court for the company to be wound up. If the creditor is successful in its application, the court will make orders that the company be wound up in insolvency and liquidators will be appointed to liquidate (“sell off”) the company’s assets and distribute the proceeds to all creditors.

What happens to the company after its assets have been liquidated and the proceeds distributed?

Once the liquidators have sold all the company’s assets and the proceeds have been distributed to all creditors, the Australian Securities and Investments Commission will deregister the company. Essentially the company will cease to exist.

What if I do not owe the amount claimed?

Often times a debtor may dispute the amount claimed in the Creditors Statutory Demand because the amount claimed is in excess of what the debtor believes is the true amount or that in fact no amount is actually owing. This is not uncommon and may provide the debtor with an opportunity to have the demand set aside.

How can we help?

We understand the stresses associated with receiving a legal document demanding payment of a debt which you may or may not owe. We can advise on the options available to you and act on your behalf whether it is to negotiate with the creditor or making applications to the court.

You have worked hard to build your company and we’d hate to see you lose it. Please feel free to contact our office to arrange an appointment with one of our friendly solicitors and let us take out the stress and let you get back to growing your business.