Collecting debts using statutory demand

If you have operated a business through a company for a period of time there is a good chance that you have received or issued, or at least have heard of, a statutory demand.

A statutory demand is one of the most commonly used tools for debt collection. This is because under the law it creates a rebuttable presumption that if a company fails to comply with a valid statutory demand the company is unable to pay its debts. This gives ground for the High Court to make an order that the debtor company be put into liquidation upon a creditor’s application.

There are a number of important things you may wish to know about statutory demand.

Formality of Statutory Demand

A statutory demand must be issued in the manners prescribed under the Companies Act 1993 (“the Act”). The Act also requires that certain information is to be put into the statutory demand. Failure to include such information may result in the statutory demand being held ineffective.

Challenging a Statutory Demand

If the company you operate has been served with a statutory demand and if you believe the debt is genuinely disputed or there is a set-off or counterclaim for an amount that equals or exceeds the alleged debt you can apply to the Court for the statutory demand to be set aside. If you are successful with the application you may be awarded costs.

This may be a good reason for a creditor to think twice and, better yet, to consult with a lawyer before issuing a statutory demand. If the statutory demand is successfully set aside the creditor may not only have to pay the costs of the debtor but will also find themselves in a difficult position to collect the debt.

Time Limit for Setting Aside a Statutory Demand

A statutory demand under the Act tells a debtor that they have 15 working days to comply with the demand. However any application to set aside a statutory demand has to be made within only 10 working days from the date of service of (i.e. the day you receive) the demand.

As such, managers of companies may wrongly assume that they have three weeks to act on a statutory demand. In fact the company has already lost the right to apply to set aside the statutory demand as the 10 working days limit for setting aside is strictly applied. Accordingly, if you have received a statutory demand you should see a lawyer as soon as possible.

Conclusion

Statutory demands should always be issued and/or treated carefully as failing or neglecting to observe the legal requirements may lead to undesirable consequences. For more information please contact the team of Forest Harrison, Barristers and Solicitors.

Please note that the above information is intended to provide general information only. The contents contained in this article do not constitute legal advice and should not be relied on as such. For legal advice please contact our professional team at Forest Harrison.