Debt in business is a necessary evil and must be managed carefully.  However, it is surprising that one of the most effective (and if done properly, least expensive) avenues
of recovering money owed from corporate debtors is the “Statutory Demand”.  The Creditor’s Statutory Demand for Payment carries with it a threat “pay up or I will wind you up”. 

The demand needs to be in a specific format and requires the company to pay the amount within 21 days.  If that company fails to pay within that period, the company is assumed to be insolvent. It means the creditor can then apply to the Supreme Court for the
winding up of the company.

The debt must be $2,000 or more and if the debtor company does not agree that the money is owed, its only avenue is to make an Application to the Court to have the Demand set aside. That Application must be made within 21 days after service of the Demand
and the company can not, under law, seek an extension of time to file the Application.

This is the feature of the Statutory Demand that makes it so effective in many situations for straightforward debts such as outstanding invoices for services rendered or products supplied.

However, the creditor must keep in mind that if the debtor receives the Demand and has a genuine dispute about the debt and is successful in having the demand set aside, the creditor may be ordered to pay the debtor’s legal costs of the Application.

However if a debt in excess of $2,000 is clearly owed and there is no proper basis for
a dispute, creditors should seriously consider this quick method of collection.

If you are the director of a company and you are served with a Statutory Demand, the document should not be ignored.  You need to act immediately.

If you believe that the debt is not owed or that there is a serious dispute in relation to the amount specific steps must be taken. An Application to set the Demand aside should be prepared immediately and at the same time attempt to negotiate with the creditor to withdraw the demand.

You should immediately seek advice from a lawyer or an accountant should you receive one. Statutory Demands expose companies and their directors to serious
adverse consequences and they cannot be ignored.  On the other hand, they are an effective tool when trying to recover monies owed by a company.