Statutory demands - the secret weapon in debt collection

Published: 1 July 2011 by Jeremy Birman

Birman & Ride’s cost-effective demand letters produce a much higher volume of debt recoveries for our clients than legal action.  For one reason, some recipients settle claims they might otherwise dispute simply to protect their credit rating.  But what if you could force a slow-paying corporation to pay up or risk being wound up? And at minimal cost for your trouble?

Such is the power of a statutory demand.

If a corporation (a public or proprietary limited company) owes you more than $2,000 you may serve it with a statutory demand pursuant to section 459E of the Corporations Act.  You must verify your demand by an affidavit if you have not already obtained a judgment.  It’s important to get the formalities right to avoid having your demand quashed on a technicality.

You can serve the documents by mail to the corporation’s registered office or personally upon one of its directors.

Once served, the corporation has 21 days to either:

• pay the debt; or
• apply to the Supreme Court to have your demand set aside.

If it fails to act, any creditor may then apply to the court for the corporation to be wound up and a liquidator appointed.  The corporation can no longer dispute the merits of your claim. 

Liquidation is the corporate equivalent of death.   Whilst some corporations might defend debt collection proceedings if only for delay, few are prepared to risk their very existence for the sake of non-payment.

Statutory demands are cheap (we charge $440 for this service).  Unlike writs and summonses, they are not publicly reported – so the threat of unwanted publicity from a writ or summons remains potent. Only the Supreme Court can set them aside – so there’s no incentive for the debtor to incur the costs involved (around $5,000) unless there is a genuine dispute.

 Of course, stat demands are not always the solution.  You must be sure that there is no reasonable defence to your claim.  Otherwise you may end up paying the costs of setting your demand aside.