When a company refuses or fails to pay an outstanding debt, creditors may have a powerful legal remedy available through a statutory demand.
However, this procedure carries significant consequences for both parties and must be approached carefully.
Under section 289 of the Companies Act 1993, a creditor can issue a statutory demand against a company for a debt of at least $1,000 that is due and payable. The demand requires the company to pay the debt, secure it, or reach an acceptable arrangement with the creditor within 15 working days of service.
If the company fails to comply, it may be presumed unable to pay its debts, allowing the creditor to apply to the High Court to have the company placed into liquidation.
Statutory demands are commonly used to recover unpaid commercial debts, including outstanding invoices and loans. However, they are not intended to be used as a debt collection weapon where there is a genuine and substantial dispute about whether the money is owed.
A company receiving a statutory demand must act quickly. If it disputes the debt, it generally has only 10 working days from service to apply to the High Court to have the demand set aside. Grounds may include a substantial dispute over the debt, a counterclaim or set-off, or other circumstances justifying the Court’s intervention.
Ignoring a statutory demand can be a costly mistake. Although liquidation does not automatically follow, failing to respond can place the company in a significantly weaker legal position.
A barrister can assist creditors in assessing whether a statutory demand is appropriate and taking further legal action where necessary. Equally, a barrister can advise companies that have received a demand, challenge demands that are legally defective or unjustified, and provide representation in High Court proceedings.
Whether you are pursuing an unpaid company debt or defending a statutory demand, obtaining timely legal advice can help protect your commercial and legal interests.
This article provides general information only and is not a substitute for legal advice about your particular circumstances.