Receiving a statutory demand is a scenario that directors dread. A formal piece of paper landing on your desk, demanding payment of a debt. The statutory demand is simple in form, yet its implications are often far reaching. Understanding your options is crucial.
If a company owes more than $1,000 and fails to settle or respond within 15 working days, the law presumes insolvency. At that point, creditors are empowered to apply to the court for compulsory liquidation.
Options
If you are the recipient of a statutory demand, you have the following courses of action to consider:
- Apply to set aside the demand (within 10 working days): If there’s a genuine dispute over the debt, the Court may cancel it.
- Pay the debt (within 15 working days): Sometimes the quickest way to resolve the matter is to settle in full.
- Negotiate a settlement (within 15 working days): Creditors may accept partial repayment or a structured payment plan.
- Voluntarily liquidate (within 15 working days): Shareholders may resolve to wind up the company themselves, appointing a liquidator of their choosing.
- Do nothing: Ignoring the demand is a gamble and probably the worst course of action. It triggers the presumption of insolvency, giving creditors a clear path to a Court-appointed liquidation.
Voluntary vs Court-ordered liquidation
In a shareholder-appointed liquidation, the company’s shareholders choose and appoint the liquidator, who then carries out their statutory duties, realises assets, settles debts, and distributes any surplus to shareholders. Depending on complexity, the process typically takes a few months to a year.
Court-appointed liquidation is more stressful because the creditor takes the matter to court, usually after a statutory demand goes unanswered. The court considers creditor input when approving the liquidator, but the liquidator’s statutory duties remain the same regardless of who makes the appointment.
The bigger picture
A statutory demand is never just a letter. It signals that the company’s financial position is under scrutiny, and the next few weeks can define its future. Quick, informed action can preserve value, protect relationships, and steer a company toward orderly resolution.
When a statutory demand lands on your desk, it’s more than paperwork. It’s a moment that demands attention, decisiveness, and strategy.
