Statutory Demands – A quick guide for contractors and builders

What is a Statutory Demand

Contrary to popular belief, a Statutory Demand is not a provided by the court. It is a demand issued by someone who is, or claims to be, a creditor and it is issued in accordance with s459E of the Corporations Act (Cth).
A statutory demand does not need to be based on a significant amount of money (just more than $2,000.00), but the failure to pay or respond to a demand in this form can have critical impacts on the company upon which it is issued.

Contractors, builders, developers and all participants in the construction industry should be aware of the severe impacts that non-compliance with a statutory demand can have on their business, which include the company being wound up and considered insolvent.

A valid statutory demand needs the following factors:

  1. Be in the prescribed form (an editable version example is downloadable here );
  2. be in writing;
  3. be signed by or on behalf of the creditor;
  4. correctly state the debtor’s company name and its registered office;
  5. correctly identify amounts that are due and payable by the creditor; and
  6. specify a place in Australia where the debt can be paid.

What are my options when I receive a statutory demand?

You have three options:

  1. pay the amount sought;
  2. have the party withdraw the statutory demand (and this withdrawal must be evidenced in writing); or
  3. make an application through the Court to set aside the statutory demand.

Payment of the demand will satisfy the demand and no further action can be taken in respect of it. If you do not agree with the amount claimed in the demand and the party making the demand will not withdraw, your only option is to seek to have the demand set aside. This involves making an application to the court within the 21 days after service of the statutory demand.

If you fail to do either of the above, the company can be deemed insolvent.

Noting the time limits, it is important that any statutory demand be immediately identified and proper procedures (including with your registered office) be adopted to ensure any such demand can be responded to promptly and properly.

Setting aside a statutory demand

If you dispute that the debt is due and payable, you have 21 days in which to apply to the court to have the demand set aside. A statutory demand may only be set aside for the following reasons

  1. there is a defect in the statutory demand;
  2. there is some “other reason”, which are:

(a) there is a genuine dispute as to the existence of the of the debt; and/or
(b) there is an offsetting claim.

The reasons to set aside a statutory demand are therefore very limited, and it is imperative that you seek legal advice as soon as possible, noting the timeframes associated. Any genuine dispute, defect or other claim will need to be properly evidenced along with the application to set the demand aside.

Builders Statutory Demands

Builders can use statutory demands where they have outstanding debts that become due and payable, including against developers and principals, however, caution must be exercised in service and attempted enforcement as unsuccessful enforcement can result in costs being awarded to the other party.

Contractors Statutory Demands

Contractors can use a statutory demand against the head contractor wherever a debt is due and payable and payment has not been received. Generally, a statutory demand can be successful where it is based upon a judgment debt or it is clear that no genuine dispute as to the amount claimed. This often means that claims under the security of payment legislation may not be appropriate for statutory demands to be issued.
If you wish to issue a statutory demand, or receive a statutory demand seek urgent legal advice. For further information and assistance, contact Morrissey Law + Advisory.

Disclaimer: This publication by Morrissey Law & Advisory is for general information and commentary only and should not be considered or relied upon as legal advice. Formal legal advice should be sought in relation to any matters or transactions that may arise in relation with communication.

2019-07-02T11:36:22+10:00October 19th, 2017|Commercial & Corporate Advisory, Construction disputes|