Business finance
How to respond to a statutory demand
Edward Chan
What a statutory demand actually is
A statutory demand is a formal document served on a company under the Corporations Act. It states that the company owes a debt, and it requires that debt to be paid, secured or compounded within 21 days. It is a corporate process. An individual who owes money is pursued under bankruptcy law, through a bankruptcy notice, not a statutory demand.
- Statutory demand
- Verifying affidavit
- Registered office
- Compounding a debt
- Presumption of insolvency
The 21 days, and when they start
Twenty-one days runs from the date the demand is served. Not the date printed on the document, and not the day you opened the envelope. Where a demand is posted, service is deemed to occur when the letter would have been delivered in the ordinary course of post, which is usually several days after the postmark. Establishing the exact service date is the first job, and it is a job for a solicitor.
- Time to comply
- 21 days
- Clock starts
- Date of service
- Set-aside deadline
- The same 21 days
- Extensions available
- None
- Creditor's wind-up window
- Three months
- Who can be served
- Companies only
The twenty-one days, and the three months behind them
Day nought
The demand is served at the registered office. This is where the clock starts, not the date printed on the document and not the day the envelope was opened.
Day one
A solicitor establishes the service date and reads the demand and affidavit for defects. The finance file is opened the same day, in parallel.
Day two to seven
If property is the likely security, the valuation is ordered now. Left until the second week it becomes the reason the money is late.
Day seven to fourteen
Documents, independent legal advice for borrower and guarantors, and the payout figure on anything already secured.
Day twenty-one
The last day to comply, or to file and serve a set-aside application. No court can extend this date.
Day twenty-two
Non-compliance presumes the company is insolvent. Nothing further needs to be proved for that presumption to exist.
Within three months
The creditor can apply to wind the company up on that presumption, and the application is advertised where banks and insurers will see it.
General sequence under the Corporations Act. The service date and every deadline that follows from it are matters for your solicitor.
View as a table
| When | What happens |
|---|---|
| Day nought | The demand is served at the registered office. This is where the clock starts, not the date printed on the document and not the day the envelope was opened. |
| Day one | A solicitor establishes the service date and reads the demand and affidavit for defects. The finance file is opened the same day, in parallel. |
| Day two to seven | If property is the likely security, the valuation is ordered now. Left until the second week it becomes the reason the money is late. |
| Day seven to fourteen | Documents, independent legal advice for borrower and guarantors, and the payout figure on anything already secured. |
| Day twenty-one | The last day to comply, or to file and serve a set-aside application. No court can extend this date. |
| Day twenty-two | Non-compliance presumes the company is insolvent. Nothing further needs to be proved for that presumption to exist. |
| Within three months | The creditor can apply to wind the company up on that presumption, and the application is advertised where banks and insurers will see it. |
Your four options
| Option | What it involves | When it makes sense |
|---|---|---|
| Pay the debt in full | Pay it, or reach a written agreement with the creditor to withdraw the demand, before the 21 days expire. | The debt is genuinely owed and the money can be found, including by refinancing. |
| Secure or compound the debt | Offer security the creditor accepts, or agree a compromise the creditor accepts in writing. | The creditor would rather be paid over time than wind the company up. |
| Apply to set the demand aside | A court application filed and served inside the 21 days, supported by an affidavit. | There is a genuine dispute about the debt, an offsetting claim, or a defect in the demand. |
| Take formal insolvency advice | Engage a registered liquidator or a small business restructuring practitioner to assess the position. | The company cannot pay its debts as they fall due and no amount of finance changes that. |
Those are the options. Ignoring the demand is not a fifth one. It is a decision to accept the consequences set out further down this page, made by default rather than on purpose.
Applying to set the demand aside
A court can set a statutory demand aside on a short list of grounds. The most common is that there is a genuine dispute about whether the debt is owed at all, or that the company holds an offsetting claim against the creditor that pulls the amount below the statutory minimum.
What happens if you do nothing
Failing to comply with a statutory demand within 21 days creates a presumption that the company is insolvent. That presumption is the entire point of the exercise. It allows the creditor to apply to wind the company up without proving insolvency from scratch, and it is available to a creditor who applies within three months of the failure to comply.
Answered inside the 21 days
Where finance fits
If the debt is genuinely owed and the business is otherwise viable, the question turns into a funding question: can the money be raised inside the window. That is a tight window for a bank and an ordinary one for a short-term or private lender.
Which kind of lender can answer a twenty-one day deadline
| Major bank | Non-bank | Private lender | |
|---|---|---|---|
| Realistically settles inside twenty-one days | No | Sometimes | Yes |
| Weighs the security and the exit ahead of credit history | No | Sometimes | Yes |
| Will sit behind an existing first mortgage | No | Sometimes | Yes |
| Wants full financials and current lodgements up front | Yes | Sometimes | No |
| Priced at the lower end | Yes | Sometimes | No |
| Somewhere to stay once the deadline has passed | Yes | Sometimes | No |
General characteristics of lender categories, not a description of any particular lender or product. Policy differs by lender and nothing here is an offer of credit.
View as a table
| Major bank | Non-bank | Private lender | |
|---|---|---|---|
| Realistically settles inside twenty-one days | No | Sometimes | Yes |
| Weighs the security and the exit ahead of credit history | No | Sometimes | Yes |
| Will sit behind an existing first mortgage | No | Sometimes | Yes |
| Wants full financials and current lodgements up front | Yes | Sometimes | No |
| Priced at the lower end | Yes | Sometimes | No |
| Somewhere to stay once the deadline has passed | Yes | Sometimes | No |
- 01
Day one: establish the real number
The demand amount, plus interest and costs to the date you would actually pay, plus anything else about to fall due. Fund the whole problem, not only the loudest part of it.
- 02
Day one to three: identify the security
Usually property, whether that is a home, an investment property or commercial premises. Equity moves quickly; income does not. A second mortgage or a caveat loan can sit behind an existing first.
- 03
Day three to seven: get the valuation moving
Valuation is the most common cause of delay in a short-dated deal. Order it early and give the valuer access the same week.
- 04
Day seven to fourteen: documents and legals
Short-term lenders require independent legal advice for the borrower and often for guarantors. Book that appointment before the documents arrive, not after.
- 05
Settle, then plan the exit
Short-term funding answers a deadline. It is not a place to live. The plan should include a move to a longer-term, cheaper facility once the pressure is off and lodgements are current.
What a lender will want on day one
Speed comes from preparation, not from urgency. If finance is on the table, assemble this before the first phone call.
