A statutory demand is a demand served under s 459E of the Corporations Act 2001, and, if used properly, is a cost effective means of recovering debt from a company. A company will be presumed insolvent, if the company fails to comply with the statutory demand. A statutory demand can only be issued to a corporate debtor if:
There is no genuine dispute about the existence of the debts; and
- The debts owed total more than $2,000 (refer to Corporations Act 2001 s 9)
- A Statutory Demand should only be served where there is no genuine dispute about the existence or amount of the debt. McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Limited, considered the meaning of genuine dispute where he said:
In my opinion that expression [genuine dispute] connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the "serious question to be tried" criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit "however equivocal, lacking in precision,inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be" not having"sufficient prima facie plausibility to merit further investigation as to [its] truth"(cf Eng Mee Yong v Letchumanan [1980] AC 331 at 341), or "a patently feeble legal argument or an assertion of facts unsupported by evidence"; cf SouthAustralia v Wall (1980) 24 SASR 189 at 194.
But it does mean that, except in such an extreme case, a court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand,determining whether there is a genuine dispute and, on the other hand,determining the merits of, or resolving, such a dispute.
The Corporations Act 2001 places strict requirements on the form and wording of the demand. If the demand is written in unclear and ambiguous language, it places the demand at risk of being set aside. This would strip the creditor of the benefits received from the company being presumed insolvent.
A company may apply to the Court for an order to set aside a statutory demand served on the company. An application can only be made within 21 days after the demand has been served and requires an affidavit supporting the application. It is assumed that the demand has been served 4 days after is has been posted. The timeframe is strictly enforced by the courts and no extensions of time can be granted.