Statutory Demand procedure: Company debtor
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Does a company owe you money?
The first thing to do is write them a Letter of Demand requesting payment. If your letter is ignored or your demand refuted, you then have the option of taking the party to court. This is done by filing a Summons (or Statement of Claim or Statutory Demand) in the relevant court.
It is very important to word a Letter of Demand correctly to ensure that it is descriptive, effective and 'technically' acceptable by the court. However, by including a Summons with your Letter of Demand, you will let them know that you are serious about your claim and that you are prepared to take the matter to court if they don't do as you ask.
There is nothing, but nothing that concentrates someone’s mind more than prospective wipe out. Of course, if you have done your homework, you never need to issue the petition.
The reason why a Letter of Demand is so powerful is that the mere issue of a summons, no matter how easily dismissed triggers a domino effect on borrowing and many other agreements. The usual words in any legal agreement, which entitles a party to avoid the agreement often, refer to the issue of a summons rather than an order for winding up. So your enthusiastic debt collection really could wipe out the largest of companies.
It used to be difficult for a third party to know about your summons. The Internet has changed all that. If you publish a copy of a summons in the right place, and tell a few banks for good measure, you are spelling disaster for someone.
The law assumes that a Letter of Demand merely paves the way for a summons. But it can be an incredibly powerful debt-collecting device without you even setting eyes on a summons.
What is more, the procedure is very easy to follow. All you need are a couple of forms and a stamp; no solicitors, no court fees.
What is a Summons / Statutory Demand?
Section 9 of the Corporations Law defines a Statutory Demand as:
- A document that is or purports to be a demand served under Section 459E of the Corporations Law;
- Section 459E provides that a creditor may serve on a company a statutory demand for a single debt that is due and payable by the company to the creditor or two (2) or more debts due and payable by the company, the total of which must exceed $2,000.
When can I use a Statutory Demand?
- Affter you have obtained default judgment; or,
- Before you commence proceedings by way of Statement of Liquidated Claim.
NB: Only use Statutory Demand to commence proceedings where you are ABSOLUTELY SURE that there is NO possibility of a dispute of whether the debtor owes you the money.
What must a Statutory Demand show?
- Specify the debt and its amount or if there is more than one debt, the total amount of all debts.
- It must relate to a debt or debts which are due and payable at the date of the demand.
NB: They cannot relate to contingent, prospective liabilities or unliquidated damages:
- It must demand the company to pay the amount of the debt or total amount of debts within twenty one (21) days after the demand is served or secure the payment of the debt or debts within a reasonable time.
- It must be in writing;
- It must be in the prescribed form;
- It must be signed by the creditor or on behalf of the creditor
How to avoid the traps
- Be careful of the manner in which you stipulate the amount of the debt, in particular the way interest is claimed;
- you must state in paragraph (1) of the form the amount of the debt and the interest due as at the date of the Statutory Demand in one figure;
- The Court will declare a Statutory Demand as defective, if you state the amount as follows:
- "$179,722.73 together with interest from 11 March 1993 to date and continuing
- being the amount of the debt in the Schedule.";
- Where there are two or more debts, the Court is undecided if a total amount of the individual debts should be specified. You should identify each individual debt and its amount and the total of the debts be inserted into the Statutory Demand to eliminate the possibility of challenge;
- Form 509H must be signed by the Creditor and/or the Creditor's solicitor;
- A Statutory Demand must be accompanied by an Affidavit Supporting Statutory Demand where there is no judgment.
Avoid Affidavit traps
- Supply the correct information required on the Affidavit;
- Make sure you swear it correctly;
- The existence of a dispute will result in the Statutory Demand being set aside.
- The Affidavit not in the prescribed form: Form 154FA;
- It must refer to the parties as debtor or creditor;
- It must contain important Notice on the bottom of Affidavit;
- It must not have a Court proceedings title or number. (This is because Court proceedings have not been commenced yet.).
Service of a Statutory Demand
- The Statutory Demand must be served on the registered office of the company (you must do an Australian Securities Commission's Search);
- You cannot serve a Statutory Demand on a foreign company as separate procedures are in place to wind up foreign companies.
Why do creditors not use it more often?
The procedure is steeped in history. Even the name is enough to put off a layman. People assume they need a solicitor:
- The requirements for a statutory demand are set by statute and they have to be followed carefully, however, they are not complicated;
- There is a small fee on a summons and you may not issue for a debt of less than $2,000, so don't issue a statutory demand for a small sum. Although you hope you will never need to issue a petition, if you chase a small sum, the statutory demand is toothless, for your debtor knows you cannot take the procedure further. Furthermore, he may calculate that you are unlikely to throw good money after bad if the debt is not a million miles from the cost;
- Your creditor has to have the money;
- You cannot threaten to wipe out then expect your customer to come back tomorrow to buy more of your goods or services. Of course, the same applies to a court claim;
- If you get it wrong, it may be you who are wiped out!
When do you use a statutory demand?
Use it when:
- You are chasing more than $2,000;
- You are absolutely certain that they owe you the money - every penny of it and the debt is crystalised. That means you do not need to ask a judge to calculate how much money is due to you;
- Your debtor has the money;
- You calculate that your debtor will pay rather than risk your issuing a petition. This depends of course on his perception of you;
- You are prepared to follow up by issuing a petition. You hope that might never be necessary. But, as in any litigation, hesitation comes through in your tactics. You lose the impact completely if you are seen to be bluffing.
- The statutory demand must state the amount of the debt and the consideration for it (or, if there is no consideration, the way in which it arises);
- Any charge by way of interest not previously notified to the company as included in its liability, or;
- Any other charge accruing from time to time;
- If the amount claimed in the demand includes:
- The amount or rate of the charge must be separately identified, and the ground on which payment of it is claimed must be stated.
- In either case the amount claimed must be limited to that which has accrued due at the date of the demand.
Proof of service of statutory demand:
- Where the petition must have been preceded by a statutory demand, there must be filed in court, with the petition, an affidavit [or affidavits] proving service of the demand;
- The affidavit must have exhibited (attached) to it a copy of the demand as served;
- Subject to the next paragraph, if the demand has been served personally on the debtor, the affidavit must be made by the person who effected that service;
- If service of the demand (however effected) has been acknowledged in writing either by the debtor himself, or by some person stating himself in the acknowledgement to be authorised to accept service on the debtor's behalf, the affidavit must be made either by the creditor or by a person acting on his behalf, and the acknowledgement of service must be exhibited to the affidavit;
- The steps of which particulars are given for the above purposes must be such as would have sufficed to justify an order for substituted service of a petition;
- If the affidavit specifies a date for the purposes of compliance with sub paragraph (c), above, then unless the court otherwise orders, that date is deemed for the purposes of the Rules to have been the date on which the statutory demand was served on the debtor.
Provided you are certain that the debt is contractually due and your debtor has the money, go for it. A statutory demand works best with people who do have money and reputation but are simply too arrogant or autocratic or bureaucratic to pay you. Use it against major plcs or someone with a reputation to protect, where they simply cannot afford even to consider whether you are serious. You will be happily surprised how quickly a cheque arrives on your doormat.
Please note that the information provided on this page:
- Does not provide a complete or authoritative statement of the law;
- Does not constitute legal advice by Net Lawman;
- Does not create a contractual relationship;
- Does not form part of any other advice, whether paid or free.
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