Insolvency Law – Changes to statutory demands from 1 January 2021- updated 1 July 2021
The temporary insolvency protections relating to statutory demands, which apply to all companies, ended on 31 December 2020.
In the normal course, under section 459E of the Corporations Act, a creditor can issue a statutory demand against a company demanding payment of a debt of at least $2,000 (the Statutory Minimum) that is currently due and payable. The company then has 21 days after being served with the statutory demand to pay the demanded amount, reach an agreement with the creditor about the debt to the creditor’s satisfaction, or to apply to a relevant court to have the statutory demand set aside.
If a company fails to respond to the statutory demand within 21 days, it will be presumed to be insolvent and the creditor can make an application to a court for the company to be wound up in insolvency and a liquidator to be appointed to the company.
In order to reduce the instances of companies being liquidated, the Coronavirus Economic Response Package Omnibus Act 2020 made the following changes to the statutory demand process:
- Increase the Statutory Minimum from $2,000 to $20,000 – meaning that a creditor must have a much larger debt owing to it by the company before it can issue a statutory demand
- Extend the time for a company to respond to a statutory demand from 21 days to six months-meaning that the company will have a longer period of time to deal with the statutory demand, reducing the pressure on the company for a quick response.
As noted above, on 31 December 2020 the temporary relief measures for statutory demands ended. This means if a company is served with a statutory demand for $2,000 or more after that time, i.e. on 1 January 2021 onwards, it will only 21 days to respond to the statutory demand, i.e. by paying the debt or applying to the court to set aside the statutory demand on the basis that, for example, the company has a genuine dispute as to the debt.
Accordingly, if you need to serve a statutory demand, or you receive one, the time to comply will from 1 January 2021 be much shorter than it has recently been.
For assistance with issuing or responding to Statutory Demands or for further information please contact Paul Thorndike 0429008247.
Reference: Mondaq
AUTHORS EDIT 1
On 3 May 2021, the Federal Government announced its intention to raise the debt threshold for issuing statutory demands to $4,000.00.
AUTHORS EDIT 2
Increase to the statutory minimum – 1 July 2021
From 1 July 2021 amendments to regulation 5.4.01AAA of the Corporations Regulations 2021 (Cth) provide that the statutory minimum debt amount to be able to issue a statutory demand has been increased from $2,000 to $4,000.
This increased amount applies to statutory demands served on a company pursuant to section 459E of the Act on or after 1 July 2021.
Statutory demands will not be able to be issued for an amount less than $4000.00.
The recent regulation amendments do not affect the length of time a debtor company has to respond to the statutory demand, which remains within 21 days.
The statutory minimum amount has been increased to address the impact of inflation, given that the existing threshold of $2,000 was set in 1992. The new minimum of $4,000 approximates the present-day equivalent of that figure considering inflation and the increase also assists in preventing viable companies suffering from short-term financial difficulties from being wound up because of small debts.
Have you been served with a statutory demand?
Have you been served with a statutory demand? If you ignore a statutory demand, it could mean the end of the line for your company. You should seek legal advice on how to formally respond.
If you dispute the debt or believe you have an offsetting claim against the creditor, we can assist you by assessing the situation and advising you of your prospects of having the demand set aside.
We can prepare an affidavit explaining why the demand should be set aside and before incurring costly court fees we can send a copy of the affidavit to your creditor inviting them to withdraw the statutory demand.
Alternatively, we can assist you with negotiating settlement to avoid your company being wound up.
Should you wish to issue a statutory demand or if you have been served with a statutory demand and need advice on how to respond please contact Paul Thorndike on 0429 008 247 or email us.