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What is a Statutory Demand?A Statutory Demand is a demand made under 459E of the Corporations Act. This document is not issued by the Court. Failure to comply with a Statutory Demand or apply to the Court to set it aside, will result in the company being “deemed” to be insolvent and provide the basis for an application to the Court for the winding up of the company.
A Statutory Demand requires that the Debtor Company pay a specified sum of money within 21 days from the date of the delivery of the demand on the Debtor Company.
If the debt is disputed or there are irregularities in the document, the company should immediately seek independent legal advice and apply to the Court to set the demand aside on the basis that the debt, the subject of the Statutory Demand, is genuinely disputed. This application MUST be made within 21 days.
What if the Statutory Demand expires unsatisfied?
Section 95(A) of the Corporations Act provides that a company is solvent if it is able to pay its debts as and when they fall due. Accordingly the test as to whether or not a company is insolvent is that it is not able to pay its debts as to when they fall due.
Under Section 459C of the Act the company is presumed to be insolvent if a company has failed to comply with a Statutory Demand.
Accordingly the delivery to a Debtor Company and non-compliance with the Statutory Demand will provide “proof” which is sufficient for a creditor to apply to the Court for the appointment of a liquidator to the company.
Can the Statutory Demand just turn up in the post?
The Statutory Demand may be:
- delivered (or served) by leaving a copy of the document at the registered office of the debtor company; or
- Sending it by post to the registered office of the debtor company; or
- By delivering a copy of the Statutory Demand personally to the directors who reside in Australia.
- So yes, a Statutory Demand could just “turn-up” in the post and still be effective.
Letters of demand to directors from the Tax Office - 222AOE Notices
Directors may become personally liable for tax debts of their companies in which they are directors if they fail to comply with the terms of a Section 222AOE Notice. This notice is also often called a director penalty notice.
A director penalty notice is NOT a court issued document. It is a document issued by the tax office under the Income Assessment Act in respect of PAYG withholding amount (i.e. the tax amount deducted from the employee wages and entitlements but which have not been remitted to the ATO).
If the director penalty notice is not complied with within 14 days, the director(s) will become personally liable for the outstanding debt as described in the notice.
A director penalty notice will usually provide you with the following options:
- That the company’s liability be discharged; or
- That you enter into a installment agreement under Section 222 (ALA) of the ITA 1936 Act; or
- That the company goes into administration; or
- That the company has been wound up
If none of the four options are available then, at the end of the 14 days, the director(s) will be personally liable for the debts as specified in the notice.
The notice is generally issued to a director’s residential address as notified on the ASIC records.
A director’s failure to maintain their current address details with ASIC may mean that they do not receive the correspondence (because it went to an old residential address); However this is not a valid defence to argue that the notice was not received.
Helpful Hint: Ensure that your address details with ASIC are up-to-date!
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