Statutory demands and proving solvency

In brief

The recent Victorian Supreme Court case* is a reminder of the high threshold required to prove solvency when faced with a statutory demand.

When a company is served with a statutory demand it has 21 days to either pay the amount owing or bring a Court proceeding that raises a genuine dispute as to the debt claimed or a procedural defect with the statutory demand.

It is assumed that if the company does nothing within this 21 day period, it is insolvent unless the company is able to prove otherwise.

Solvency

The general test when assessing solvency is whether the company can pay its debts as and when they fall due. A temporary lack of liquidity does not in of itself demonstrate insolvency.