Statutory Demands

what are statutory demands

If a creditor is owed money, they can issue a statutory demand. A statutory demand is a formal written request that a debt must be paid. An individual or business that receives a statutory demand has 21 days to: settle the debt.

Statutory demands under section 459E of the Corporations Act

Creditors can make a statutory demand for payment of a debt under section 459E of the Corporations Act as long as the debt is due and payable. Companies which are served with a statutory demand have 21 days to apply to the Court to have it set aside.

Failure to comply with statutory demand common cause of presumption of insolvency

Under section 459C of the Corporations Act, a company is presumed to be insolvent if in the three months after the day on which a winding up application is made, one of these events occurs:
· the company fails to comply with a statutory demand
· a judgment remains unsatisfied
· a receiver and/or manager or controller is appointed to the company, either privately or by the Court

Most commonly the presumption of insolvency arises from the failure to comply with a statutory demand.
While some parties attempt to use statutory demands as a means of collecting debts, the Courts have been quite clear that this is an improper purpose.

The most common reason for company liquidation is insolvency

Just as an individual can be bankrupted, so a corporation can be wound up and brought to a commercial end. Whereas an individual continues to live and breathe through and after bankruptcy and their debt position is largely wiped clean, a company is ultimately brought to a commercial conclusion by a wind-up application.
The most common basis for placing a company into liquidation is insolvency.
The test of whether or not a company is insolvent under section 95A of the Corporations Act is whether or not the company is able to pay its debts as and when they become due and payable.