If you are a business owner, you likely have used some form of financing to assist you from time to time in running your business and meeting various day to day cashflow needs, like making payroll or paying for supplies. This might be a loan from a bank or a private individual, or else could be a line of credit or other financing arrangement.
Whatever type of financing your business depends on to make payroll and provide you with sufficient working capital to operate your business, it is almost inevitable that your business will hit hard times at some point. It is a natural part of the business cycle and is not cause for undue alarm or panic. It is the attitude that your creditors take towards any financial troubles which ultimately will determine the future of your business from a legal perspective.
A creditor can take a number of approaches to a debtor company that is unable to pay back a loan and does not meet its obligations to make the required payments. The creditor could serve a statutory demand that would give the borrower 21 days to challenge the amount or validity of the debt. Once that 21 days has passed, a creditor can file for involuntary insolvency proceedings to be instituted against the debtor or else file a lawsuit to collect on the debt. However, sometimes a creditor will agree to restructure a debtor’s payment obligations, so approaching creditors to determine if they would be willing to modify the terms of whatever debts your business may owe is always a smart first step.
In the event that a creditor is unwilling to accommodate a request to restructure your debt and decides to serve a statutory demand or attempt to invoke involuntary liquidation proceedings against your business, you do have defense available to you as a debtor. If the debtor has served you with a statutory demand under Australia’s Corporations Act, you have 21 days within which to apply to a court to dispute the validity of the demand or the status of the debt. To the extent a debtor is successful in doing so, the debtor can recover any legal fees incurred in that process. There are a number of grounds upon which a debt could be found by a court not to be legally valid if the debt is challenged by the debtor. There could be a defect in the agreement that was entered into when the debt was incurred, or the creditor may not have strictly complied with the process for serving a statutory demand under the Corporations Act. In addition, the terms of the borrowing may also themselves be illegal.
If you are a business owner who has received a statutory demand from a creditor, or if you have been sued by a creditor to whom your business owes money, contact the experienced specialists at PMF Legal to discuss your situation.