In the event a corporate debtor owes you or your business money, Australian law provides a remedy known as a statutory demand to help creditors recover unpaid monies from corporate debtors. A statutory demand is a procedure by which the creditor, in this case your business, puts the debtor on notice that he or she is in default on a debt by serving an official notice. If the debtor does not satisfy the debt within the prescribed 21 day statutory period, then your business can petition for the initiation of involuntary insolvency proceedings against the debtor. The benefits of using this procedure are that it forces a corporate creditor to formally take action to accept or repudiate the debt owed to your business. Statutory demands are only available for debts that exceed the sum of $2,000.
Often, however, the reality is that creditors will ignore statutory demands. Nevertheless, this is a legal procedure that can be worth invoking for the very reason that doing so can put pressure on a debtor. The debtor has 21 days to respond to the demand. If the debtor does indeed ignore your statutory demand, then you are entitled to take certain legal actions against the debtor. These include petitioning a court to have the corporate debtor wound up in insolvency proceedings, with the failure to comply with the statutory demand serving as proof that the corporate debtor is indeed insolvent.
Nevertheless, a business owner needs to be careful what steps he or she chooses to take after serving a statutory demand. For example, petitioning to have a corporate debtor placed in involuntary insolvency proceedings can sometimes backfire on a creditor. The corporate debtor may have so many creditors that a creditor who invokes involuntary insolvency ends up one among many who are splitting pennies on the many dollars of debt the corporate debtor has. The corporate debtor is also entitled to contest a statutory demand, so a corporate debtor that receives a statutory demand can apply to a court to have the demand set aside and recover the costs of such a proceeding from the creditor if the debtor prevails. Therefore, serving a statutory demand is not always the right move for your business if it is owed money by a corporate debtor.
If you are a business owner or executive who is owed money by a corporate debtor and you are unsure what course to take, contact the experienced team at PMF Legal to discuss your situation.