A statutory demand is a formal demand for payment of a debt owed by a company. Creditors issue statutory demands to show the Court that the company is insolvent and apply for winding-up orders. Section 459E of the Corporations Act 2001 (Cth) [‘the Act’] clearly sets out the requirements of a statutory demand, which can be applied in the Federal Court or the Supreme Court of New South Wales. Although the list of requirements appears to be simple, in practice it is filled with pitfalls due to the technical nature of the requirements and the enforcement of strict procedural compliance by the Courts. Most requirements are tied to case law which go into further detail about the Court’s expectations. This article will share a case summary of Austech Institute for Further Education Pty Ltd v Britt  NSWSC 56.
Presumption of insolvency
Under s459C(2) of the Act, the Court must presume that the company is insolvent if, during or after the three months ending on the day when the application was made, one of six situations arise. The most common situation is the company’s failure to comply with a statutory demand. However, this presumption can be rebutted if there is clear evidence of solvency. Even where insolvency is proven, the Court can still refuse a winding-up order on various grounds.
Requirements of a Statutory Demand
1. The debt is due and at least $4,000.00. If there are two or more debts due, the total of the debts must be at least $4,000.00. The Commonwealth Government raised the statutory minimum from $2,000.00 to $4,000.00 via the Corporations Amendment (Statutory Minimum) Regulations 2021, which came into effect on 1 July 2021. This change was the Government’s response to the economic impact of COVID-19 so that small businesses, their creditors and their employees are better served.
2. The demand must specify the debt and its amount.
3. The demand must require payment within twenty-one days, calculated from the date of effective service. It must be addressed to the correct company and correctly identify the corporate name of the creditor or the business name under which it is entitled to carry on business and to include the Australian Company Number.
4. The demand must be in writing.
5. The demand must be expressed in the prescribed form from the Corporate Regulations 2001 (Cth).
6. The demand must be signed by or on behalf of the creditor. If there are joint creditors, it should be signed by both creditors. If the creditor is a company, then it must be signed by an officer of the company. If a solicitor is signing on behalf of the creditor, the affidavit supporting the winding-up application should affirm the solicitor’s authority to sign the demand on behalf of the creditor.
7. Unless the debt(s) is a judgment debt, the demand must be accompanied by an affidavit that verifies that the debt(s) is due and payable by the company and complies with the Court rules. In other words, the affidavit must be sworn or affirmed by someone with direct knowledge of the debt and not on information and belief. The reason behind this strict requirement is to ensure that a company is not served with a demand that has not foundation. A defective affidavit accompanying the demand may result in the demand being set aside.
Austech turns to the issue of whether a statutory of demand is defective if the affidavit that verifies the debt is affirmed or sworn by the creditor’s solicitor.
New South Wales Supreme Court
Plaintiff: Austech Institute for Further Education Pty Ltd
Defendant: Ms Britt
The Plaintiff failed to pay rent from 1 March 2009 to 30 September 2009. Consequently, the Defendant served a statutory demand on the Plaintiff and claimed $260,901.62. However, the affidavit verifying the demand was not sworn by the defendant, but by the defendant’s solicitor. The Plaintiff lodged an application in the Supreme Court to set aside the demand.
The statutory demand was set aside for two reasons:
Firstly, the affidavit verifying the demand was defective. Generally, demands ought not to be supported by an affidavit from the creditor’s solicitor. Failure to comply with the requirement to state in the affidavit supporting the Statutory Demand the source of knowledge or the basis of information for the belief that there is no genuine dispute as to the existence of the debt is fatal to the Statutory Demand. The Defendant’s solicitor did not investigate any records which could inform him as to whether a genuine dispute exists which arises outside the terms of the lease and by reason. Therefore, the solicitor’s affirmation that there is no genuine dispute as to the existence of the debt must be founded either on a complete absence of knowledge of the circumstances or must be based on hearsay from a source not identified.
Secondly, there were genuine disputes as to the existence of the debt under the lease and as to an offsetting claim.
The Defendant was to pay the Plaintiff’s costs of proceedings.
Service of a statutory demand
A demand can be served by post to the registered address of the company. Alternatively, it can be personally served on the company’s director. Section 109X of the Act outlines further details on how a document can be served on a company. However, service by post has been subject of many disputes, therefore this method should be avoided if possible.
Winding up a company by way of statutory demand is far from easy from a creditor’s standpoint. The Act and surrounding case law share a significant amount of detail that is required to be inputted in a demand. If the demand is not drafted correctly, the creditor could face indemnity costs like the Defendant in Austech. Therefore, if a company owes you money and you want to issue a statutory demand, you should seek legal advice. Our commercial law team at Legal Point Lawyers have many years of experience in preparing statutory demands and winding up companies.
Disclaimer: This publication is general information only and does not purport to provide legal advice. We do not accept responsibility for any losses for reliance upon this publication.
Ge Wu is the solicitor director of Legal Point Lawyers & Attorneys. He has been admitted to practise law since 2005. Throughout his practice, Ge Wu predominantly practises in the areas of Property Law, Immigration Law, Commercial Law, Civil Litigation and Family Law.
His experience covers all aspects of property law, commercial/retail lease, immigration law and civil litigation, while at the same time, he also has experience in family law, criminal law and other areas such as will-drafting and general advice.
He has frequently been instructed by corporate clients in pre-acquisition due diligence reports, structuring property development, land/shopping centre acquisitions, G.S.T. and stamp duty advice for buying/selling businesses, as well as share transfers and company re-structures.
Ge Wu has been appointed as Notary Public since 2011 and started to provide Notary Public service to clients from different cultural backgrounds.
Daniel’s expertise spans civil litigation, criminal law and real property matters.
Daniel is noted for his experience in settling a complex family law matter concerning the division of matrimonial property. Furthermore, he has appeared in Courts across New South Wales for criminal matters ranging from traffic offences to assault charges to bail applications. Daniel also has extensive knowledge and experience to prepare and advise on commercial leases and contracts for the sale of land.
He has a keen interest in obtaining the best possible outcome for his clients in the most cost-efficient way. Clients appreciate Daniel’s responsiveness, business acumen and ability to deliver advice that is easy to understand.
Daniel holds a Bachelor of Laws and Bachelor of Commerce from the University of Sydney. He is a solicitor of the Supreme Court of New South Wales.
He is proficient in English and Cantonese.