Until debt do us part: The effective use and pitfalls of statutory demands

Introduction

A creditor who is claiming a debt from a company will often want to employ the quickest and cheapest method of recovery and the risks, costs and length of time associated with commencing court proceedings may not be the most appealing option.

Accordingly, many creditors will often consider issuing a company with a statutory demand under section 459E of the Corporations Act 2001 (Cth), which requires a debtor company to pay a debt it owes within 21 days. If the debtor company fails to pay the debt, come to a suitable arrangement with the creditor, or make an application to set aside the statutory demand within that time period, the company is presumed to be insolvent. Once there is a presumption of insolvency, it is then open to the creditor to commence proceedings to wind up the debtor company and have a liquidator appointed.