What is a Creditor’s Statutory Demand?

A Creditor’s Statutory Demand (CSD), as defined under section 459E of the Corporations Act 2001 (Cth) (“the Act”), can be a highly effective tool in the recovery of a debt against a company (“debtor”).

What is required for a Creditor’s Statutory Demand?

To issue a CSD, the following requirements must be satisfied:

1. the total debt amount must exceed $2,000.00;
2. must be issued in writing using the appropriate form;
3. total debt amount must be specified, as well as due and payable at the time of demand;
4. total debt amount must include interest due at the date of demand; and
5. signed by, or on behalf, of the creditor.

If the debt is not a product of a court ordered judgment, an affidavit completed by the creditor or a principal/director of the creditor, should be attached to the CSD, which confirms the debt is due and payable.

Although the total debt amount must be specified, it was held in Commonwealth Bank of Australia v Garuda Aviation Pty Ltd [2013] WASCA 61 that this requirement does not prevent a creditor from serving a CSD on a debtor for an undisputed portion of a debt as opposed to the total amount.

Does a Creditor’s Statutory Demand have to be filed?

A CSD does not have to be filed with the Court, only served on the debtor.

How is the Creditor’s Statutory Demand served?

Generally, service is only affected via post to the registered office of the company or personal service on a director. A creditor is entitled to assume that the debtor has been served 4 days after the date on which they posted the CSD.

What are the debtor’s options to the CSD?

The debtor may respond to the CSD within 21 days (section 459F of the Act) of service of the CSD by:

1. acquiescing to the demand, and paying the claimed amount;
2. negotiating with the creditor a compromise; or
3. applying to the Supreme Court to set aside the CSD.

Should none of the above be completed within 21 days after service, the debtor will be presumed to be insolvent, and an application can be made by the creditor to wind up the company.
This 21 day deadline is indicative of the inflexible, strict framework that CSD’s operate under, and should impress upon any company the need to act without delay if served with a CSD.

On what grounds may a CSD be set aside?

The Court may set aside a CSD if any of the following is present:

1. there is a genuine dispute over the debt (or the amount claimed);
2. the debt amount is less than the statutory minimum;
3. there is a defect in the CSD that would cause substantial injustice if the CSD is not set aside; or
4. there is some other reason why the CSD should be set aside.

The issue of a genuine dispute is very important when considering whether or not to issue a CSD. Should the debtor manage to establish a genuine dispute, the CSD may be set aside and you may be liable for costs involved in the application. A genuine dispute does not require the debtor to be able to argue a complete rebuttal of the outstanding amount, merely the basis of one.

The importance of ensuring that a CSD is accurate and free from defects was highlighted in Wollongong Coal Limited v Gujarat NRE India Pty Ltd [2015] FCA 221, where a CSD was set aside due to the accompanying affidavit pre-dating the CSD itself. The Federal Court of Australia held that this created the possibility that the debt could have been repaid in the time between the two documents. Although this was said to be a technical issue, it was substantial enough to allow the Court to set aside the CSD.

For creditors with undisputed debts, a CSD may be a quicker and more cost effective avenue to recovering a debt from a debtor than commencing legal proceedings. However, it is important to note that when drafting a CSD, it must be specific and free from any defects that may allow the debtor to seek to have it set aside.

If you have any questions regarding recovery of a debt or a statutory demand, please contact me.