Twenty-one days: what a statutory demand really means

A creditor's statutory demand is served under section 459E of the Corporations Act 2001 (Cth). It requires a company to pay a debt, generally of at least the statutory minimum, within twenty one days of service.

The document itself is unimpressive. A form, an affidavit in some cases, a debt. What it does is not.

The consequence of doing nothing

If the company does not comply within twenty one days, it is presumed to be insolvent under section 459C. That presumption is the foundation of an application to wind the company up. At the winding up hearing the company cannot, without leave, rely on any ground it could have raised in an application to set the demand aside.

So the company that had a genuine, obvious defence to the debt, and simply did not respond in time, arrives at the hearing with almost nothing to say.

Your three options, inside twenty one days

1. Pay the debt, or secure or compound for it to the creditor's reasonable satisfaction.
2. Reach an agreement with the creditor and have the demand withdrawn in writing. Get the withdrawal. A friendly phone call is not a withdrawal.
3. Apply to the court to set the demand aside under section 459G. The application and the supporting affidavit must be filed and served on the creditor within twenty one days.

Why the deadline is different from every other deadline

The twenty one day period in section 459G is not extendable. The High Court settled this in David Grant & Co Pty Ltd v Westpac Banking Corporation (1995). The court has no power to enlarge it, no matter how good your reason, how short the delay, or how meritorious the underlying defence.

Nearly every deadline a lawyer deals with has some relief from it somewhere. This one does not.

Grounds to set the demand aside

• A genuine dispute about the existence or the amount of the debt, under section 459H. The threshold is low. You do not have to prove you would win. You have to show the dispute is genuine, and not merely spurious or a delaying tactic.
• An offsetting claim, also under section 459H. A genuine claim the company has against the creditor, by way of counterclaim, set off or cross demand.
• A defect in the demand causing substantial injustice, under section 459J. Wrong amount, wrong entity, badly described debt.
• Some other reason why the demand should be set aside, also under section 459J. This is narrower than it sounds.

What we do when a client rings on day sixteen

We work out when service occurred, because that fixes the deadline and it is frequently arguable. We read the demand and the affidavit for defects. We take instructions on any dispute or offsetting claim and we get it into an affidavit, because the grounds you rely on later are generally confined to those raised in the affidavit filed within the period.

And we look at the commercial answer. Sometimes the fastest and cheapest response to a demand for $28,000 that is genuinely disputed as to $6,000 is to pay $22,000 and negotiate. That is a decision for the client, made with the numbers in front of them.

If you are the creditor

A statutory demand is not a debt recovery tool. It is an insolvency tool. Using it where you know there is a genuine dispute exposes you to an adverse costs order and, in some cases, to a damages claim. If you simply want to be paid, a letter of demand and a statement of claim are the right instruments.

The short version

Twenty one days. No extensions. If a statutory demand has been served on your company, the useful window is already closing.

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