My Statutory Demand is defective – what now?

Serious repercussions await those who issue a defective Statutory Demand.

Following on from our first article in this two-part series on Statutory Demands, we discuss the implications of incorrectly issuing a Statutory Demand.

In brief:

Failing to correctly issue a Statutory Demand as outlined in the Corporations Act 2001 (Cth) can produce an expensive and counter-productive result for the issuing party, highlighting the need to follow the requirements and include the right details.

What you need to know:

• There are a myriad of ways that a Statutory Demand may be deemed defective. It is therefore extremely important to follow the requirements in the Act regarding issuing a Statutory Demand.
• Any application to set aside a Statutory Demand must be made in either the Federal or Supreme Court and must be filed and served before the expiry of the 21 day time limit.
• If an application is not made and payment not received within the 21 days, then you may proceed to make an application to either the Supreme or Federal Court to wind up the company.

What do you mean my demand is defective?

As with most things, the devil is in the detail. Although the Courts have found that a defect needs to be of substance not form, there are a myriad of ways that a Statutory Demand may be deemed defective. These include:

• The demand and/or the accompanying affidavit are not in the prescribed form;
• Not being properly addressed to the registered office of the debtor company. (NB the address must be exactly the same as whatever is recorded on the ASIC register);
• Not having the correct debtor company name or ACN;
• The debt not being due and payable;
• The debt not being adequately described;
• The debt being a claimed is a disputed debt;
• A demand for payment other than for a judgment debt is not accompanied by an affidavit;
• The affidavit accompanying the demand is not sworn on the same day as the date of the demand; and
• If the demand is being served interstate – whether an address for service in that state is included.

In addition to the above non-exhaustive list, the Court may also set aside a demand for 'some other reason'.

What happens if the demand is defective?

Any application to set aside a Statutory Demand must be made in either the Federal or Supreme Court and must be filed and served before the expiry of the 21 day time limit. All affidavit material in support of the application must also be served in this time. No further affidavits raising new matters may be filed after the 21 day period lapses.

If an application to set aside a demand is successful, the party who issued the demand will most likely have to pay the company's costs. Given that it is a Supreme Court application and that barristers are often involved, costs may well exceed $10,000 in addition to your own legal costs which will also need to be paid.

If an application is not made and payment not received within the 21 days, then you may proceed to make an application to either the Supreme or Federal Court to wind up the company.

How do I avoid issuing a defective Statutory Demand?

Before issuing a Statutory Demand, make sure your answer is "yes" to the questions in the following checklist to help avoid any defects.

1. Has the debt crystalised?
2. Is the debt due and payable?
3. A dispute does not exist in respect of the debt, or part of the debt?
4. Have I done a recent company search and sent the demand by ordinary post to the company's registered office?
5. Have I used the proscribed forms and completed them properly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Madgwicks is a member of Meritas, one of the world's largest law firm alliances.