Issuing A Statutory Demand

When Can a Statutory Demand Be Issued?

A statutory demand can only be used for debts that are due and payable. It can’t be used for claims that are quantifiable. A debt and a claim might sound like the same thing, but, legally, they’re very different.

What Is a Debt?

A debt is a liquidated sum of money presently due, owing and payable by one party (the debtor) to another party (the creditor). A debt is due and payable if: 

• it is legally liable to be paid by the debtor (due)
• the time for payment, as stated in the contract, has arrived (payable).

For example, if your contract states that a sum of money is payable following delivery of goods/services, and the recipient admits liability but does not pay (that is, they stall the payment), then you have a debt that is due and payable.

But, if the recipient says you didn’t deliver the goods/services as specified in the contract, then you don’t have a debt that is due and payable – instead, you have a claim.

What Is a Claim?

A claim exists when you’re entitled to pursue someone and either one of the following is true:

• The sum of money needs to be quantified.
• The issue of the claim is disputed.

Here’s an example: you hire a party to do a job, their work doesn’t meet their contractual obligations, and you need to redo their work at an unknown cost. In that scenario, you would have a claim against the party, but you don’t have a debt that is due and payable because you don’t know how much the repair is going to be.

Another example is if a party disputes that they either owe you money or are at fault. You won’t be able to quantify the amount owed, so you have a claim, not a debt.

Improperly Issuing a Statutory Demand

If you use a statutory demand to pursue a claim, you’re ‘abusing the process’. That could mean you end up defending the appropriateness of your statutory demand in court – and, possibly, paying damages to the other side.

If you sent a statutory demand to a debtor and didn’t receive a response in 21 days, you might think you escaped the consequences we discussed above: no abuse of process, no costs, no negative consequences – just a debt due and payable. Unfortunately, that’s not correct.

An unopposed statutory demand does lead to the presumption that the debtor is insolvent, which gives you the right to apply for a winding-up of the company (the ‘nuclear’ part of the ‘nuclear option’).  Even if the debtor resists your application by saying that it wasn’t aware of the consequences of the statutory demand, that the demand hadn’t been delivered, or that no one opened the envelope containing the demand, the Court will be inclined to wind up the company. The only way the debtor can avoid being wound up is by proving that it is actually solvent.

That can lead a very costly process where the debtor says that: 

1. there is no debt because the amount owed is subject to dispute (that is, a claim)
2. you (the creditor) knew this and misused the statutory demand to put pressure on the debtor
3. the debtor is solvent.

The outcome isn’t certain (the Court may find the debtor isn’t solvent and the company should be wound up), but the process is definitely complex. What could have been a relatively straightforward debt recovery process instead becomes about whether the method you used was appropriate.

How Can a Statutory Demand Be Withdrawn?

A statutory demand can be withdrawn once it’s been issued. If you’re negotiating with a debtor and you want to withdraw the demand without payment, make sure your withdrawal is in writing (such as a letter or email) and unambiguous.

You can add conditions for a withdrawal, but it’s important to make sure that the withdrawal occurs automatically upon those conditions being fulfilled. Your solicitor can help you phrase your withdrawal letter in a legally binding way.

Summary

Given the complexities associated with the statutory demand process, the best thing to do is to find a lawyer who understands the full scope of available options (including insolvency processes) – and who will only issue a statutory demand if and when appropriate. Don’t just go straight to pressing the nuclear button.

Bell Legal Group has helped creditors negotiate the payment of various-sized debts, including in scenarios where statutory demands have been involved. Talk to our dispute resolution team to find out how we can help you recover the money you’re owed. 

The content of this page is for information only. The content does not constitute legal advice and should not be relied upon as such. You should obtain advice that is specific to your circumstances before taking any action.