As we’ve talked about in a previous blog post, one way creditors can recover money from a company is with a Statutory Demand. The demand, made under Section 459E of the Corporations Act 2001 (“The Act”), gives the company 21 days from the date it’s received to pay a specified sum of money .

If you receive a Statutory Demand, you have 21 days to either:

  • pay the debt in full
  • apply to have the Statutory Demand set aside on the grounds that:
    • it’s defective
    • you have a genuine dispute about the debt it’s based on.

If you don’t act within the 21-day timeframe, your company is presumed to be insolvent in accordance with Section 459C of the Act. The creditor can then file an application to wind up your company, using your failure to comply with the Statutory Demand as proof that your company is insolvent.

Important note: Even if you subsequently pay the debt owing to this creditor, another creditor can apply to substitute its claim against your company and continue the winding up proceedings. One more reason why you should always get insolvency advice from an expert, not an ambulance chaser.

If you receive a Statutory Demand and you can’t pay the amount owing or raise a genuine dispute, you need to act immediately. That way you have the option to appoint either a Voluntary Administrator or  Liquidator.

Appointing a Voluntary Administrator

Company Directors usually consider appointing a Voluntary Administrator when they’re thinking of putting forward a Deed of Company Arrangement. This option gives you a chance to avoid putting the company into liquidation and potentially losing it altogether.

But you need to ensure the Administrator is appointed before any application to wind up the company is filed with the court. If the appointment is made after the application is filed, the Administrator will need to demonstrate to the court that:

  • a DOCA is likely to be put forward
  • the company’s creditors will receive a greater return under the DOCA than they would if the company was wound up by the court.

This process, which is often time consuming and costly, can easily be avoided by acting before the Statutory Demand period expires.

Appointing a Liquidator

Rather than waiting for a creditor to make an application to the Court, the company’s Directors may choose to place the company into liquidation. However, a company can’t be wound up voluntarily if an application to wind it up has been made to the court.

Whatever option you end up choosing for your company, when you receive a Statutory Demand you need to act quickly. And the first thing you should do is get advice from insolvency experts like Rapsey Griffiths. So get in touch with us today, and let’s work out the best option for you and your company.