How to Set Aside a Statutory Demand
If your company receives a statutory demand for payment of a debt, it is worth considering whether an application should be made for it to be set aside.
An application to set aside is made under section 459G of The Act and must be made within 21 days after the demand is served.
Is the demand in the correct form?
The requirements of a statutory demand are prescribed under section 459e of the Corporations Act 2001 (Cth) (The Act). Due to the severity of consequences that follow non-compliance of a statutory demand, the applicant creditor is expected to comply with the requirements.
Factors to check and consider may include the following:
The debt is for at least $2,000.
The demand clearly specifies the amount of the debt.
The demand provides 21 days to satisfy the debt.
The demand is in writing and signed on or behalf of the creditor.
The demand was served on the company at its registered address.
If the debt is not a judgment debt, it is accompanied by an affidavit verifying that the debt is due and payable.
Is there a genuine dispute about the amount of the debt or its existence?
If you have a genuine dispute about the full amount in the demand, or the existence of the debt itself, you can rely on these grounds to set aside the demand.
The standard of proof is quite low, but there must be more than a mere assertion of a dispute. You do not need to provide evidence to prove your case, but an affidavit must be filed and served explaining the genuine dispute. The Court must be satisfied that there is a serious question to be tried.
Do you have an offsetting claim?
If you have an offsetting claim against the creditor, and that claim would reduce the debt amount to below the $2,000 statutory minimum, the Court can make an order setting aside the demand. Alternatively, the Court can make an order reducing the amount of an admitted amount by the amount of the off-setting claim.
Is there a defect in the demand that will cause significant injustice?
If the demand contains a defect that will cause significant injustice, the Court will likely set it aside. For example, it could be considered unjust if the demand contains a defect which makes it difficult for you to comply with the demand. This could occur where the demand requires you to calculate the total amount being demanded or to calculate and add interest to the principle amount.
Is there some other reason why the demand should be set aside?
The Court has a very broad discretion to set aside a statutory demand if it is satisfied that there is a good reason to do so. The reason could be due to a significant prejudice of one of the parties, improper service or misstatements within the demand.
An example may be where a demand was validly served but the creditor knows that it has not come to the attention of the company. The creditor also knows that there is a genuine dispute about the demand and fails to bring the demand to the notice of the officer in the hopes that the 21-day period will expire and an application can be brought to wind-up the company.
COVID-19 temporary amendments
From 25 March 2020 the Coronavirus Economic Response Package Omnibus Act 2020 has made amendments lasting 6 months to the Corporations Act 2001 (Cth). The amendments amongst other things have changed the following:
The statutory minimum for issuing a Statutory Demand is now $20,000; and
The compliance time has increased from 21 days from service to 6 months from service; and
Directors not to be personally liable for Insolvent trading (in some circumstances).
The reason for these changes is to ease financial distress on companies.