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How do statutory demands work?

So, someone owes you money. Let's look into how statutory demands work

How do statutory demands work?

A person or company who is owed money can serve a statutory demand on a debtor company requiring it to pay a debt that is due to them. A statutory demand is form under the Corporations Act (508H to be exact) that outlines the debtor company's name and address, how much is owed and where/how to pay the money. The demand is usually supported by an affidavit which goes into detail about the debt.

The power of the statutory demand is that, if the creditor (company owing money), fails to pay the demand within 21 days of service of the document, it is presumed to be insolvent and the creditor can apply to the Court to have the company wound up under the Corporations Act.

Statutory demands are best for:

1- Debts over $2,000 already due and not paid; and

2- Where there is no dispute about how much is owed or that they owe money.

What happens when a company is wound up?

When a company is wound up by a Court for not paying a statutory demand, a liquidator is appointed and the company is declared insolvent. A liquidator's job in the liquidation includes:

1- Wind down the business of the company.

2- Investigate the circumstances that led to the liquidation.

3- Maximise the recovery and realisation of assets.

4- Distribute the assets (proceeds of sale) amongst creditors.

Good to know

It is beneficial to get a lawyer to prepare the statutory demand and application for winding up because there are lots of rules about what needs to be included and how it needs to be served on the debtor.

Happy to help. Should you have any questions, please do not hesitate to contact Caroline Mense, Principal Lawyer at Legal Enablers on (03) 8691 3128.

Disclaimer: The purpose of this article is for information and general interest. It is not legal advice nor tailored to your unique situation. We would, however, be delighted to help. So, if you have any questions- we are all ears!

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