"Out of debt out of danger"- James Kelly, Scottish Proverbs 1721

Business debt is a necessary evil, but it must be carefully managed, or else it can become dangerous.

Your business may have received a Statement of Claim, Summons or Subpoena - documents with an official Court seal on it and which have a limited time frame in which to respond. It is usually obvious that a failure to respond will result in consequences to your business.

Businesses also receive letters of demand from solicitors. Sometimes these letters are overlooked or ignored and another opportunity to address the matter arises if further correspondence is received or Court proceedings are commenced.

However, there is a document that should never be ignored - a Statutory Demand pursuant to the Corporations Act 2001. Statutory Demands are the first step in the winding up of a company.

The Statutory Demand does not have a Court seal upon it and it may be confused with a solicitor's letter of demand.

The Statutory Demand will require the payment of a debt within a period of 21 days, or else the entering into of satisfactory arrangements for the payment of such debt. The debt must be more than $2,000.00.

An application may be made to the Supreme Court to set aside the Statutory Demand for a number of reasons. The usual reason is that the debt is disputed. However, the dispute must be genuine.

The application must be made within 21 days of the date of service of the Statutory Demand. If not, an application cannot be brought later, disputing the debt, except with the leave of the court.

The only other way in which a Statutory Demand can be dealt with is to seek an unconditional withdrawal in writing by the creditor.

If the demand is not satisfied within the 21 day period, or an application is not made to the Supreme Court to set the demand aside, a presumption of insolvency will arise. The creditor will be entitled to apply to the Supreme Court for an order to wind up the company.

Many otherwise healthy companies are wound up for small debts such as workers compensation insurance premiums and the fact that they overlooked or ignored a Statutory Demand. Always seek advice if you should receive one.

Another document that should not be ignored is a Director's Penalty Notice from the Australian Tax Office. More advice on that later.

Graham Lancaster
Access Law Group
glancaster@acesslawgroup.com.au