Debt recovery is more active than ever, with statutory demands playing a key role in prompting companies to settle outstanding debts. However, issuing a statutory demand is often just the start of a more complex process litigation frequently follows, turning what may seem straightforward into a battleground of procedural challenges
Recent cases highlight a surprising range of issues, from postage technicalities costing creditors their claims to debates over how and when demands are properly served. These cases underscore the importance of having attention to detail for both creditors and directors.
In this update, I explore these developments and what they mean for anyone navigating statutory demands. As always, please call me via my details below if this raises any questions for you.
Recap: What is a Statutory Demand
A statutory demand is a formal written request that a creditor can issue to a company to recover a debt, under section 459E of the Corporations Act (Cth). If the company does not respond within 21 days or fails to apply to the court to have the demand dismissed due to a genuine dispute over the debt, it is presumed to be insolvent. This presumption can lead to the company facing winding-up proceedings.
Key Steps to Validly Serve a Statutory Demand
Under section 459E of the Corporations Act 2001 (Cth), statutory demands must be served precisely to be effective. Section 109X governs proper service. For validity, a statutory demand must:
- Be in writing using the prescribed Form 509(H).
- Clearly identify the debtor company and creditors.
- Be signed by the creditor or their authorised agent.
- State the full name and registered office address of the debtor company.
- Specify the exact amount of the debt claimed.
- Provide a payment location in Australia. This is usually the debtor’s office or their lawyer’s office.
Proof of Proper Postage Matters: Re Lanart Homes Pty Ltd [2024] NWSSC 1684
In this case, the key issue was whether the statutory demand had been properly served by post. Although the creditors’ solicitor confirmed the demand was mailed, the company denied ever receiving it. The court focused on the postage used to send the demand, which is a critical part of valid service by post and held that for proper service, the letter must be correctly addressed, sealed in an envelope, have the right postage, and of course be posted.
While most steps were established, the creditors issuing the demand failed to prove that the amount paid for postage covered the distance the letter needed to travel. Without evidence of proper postage or tracking, the court ruled the demand was not properly served, making the service invalid. This highlights how even small details like correct postage can be crucial in ensuring a statutory demand is legally effective.
Serving Documents at Unattended Offices: Deputy Commissioner of Taxation v ACN 152 259 839 Pty Ltd [2024] FCA 1489
In Deputy Commissioner of Taxation v ACN 152 259 839 Pty Ltd [2024] FCA 1489, the Federal Court considered whether a statutory demand was validly served on a company whose registered office was permanently unattended. An ATO officer attempted service by sliding the documents under the locked office door without calling the phone number on a sign that indicated the office might be unattended. The Company failed to meet the demand within 21 days, leading the Deputy Commissioner of Taxation to seek a winding-up order.
The company argued this was insufficient service claiming they never received proper notice, especially since the office had been unattended for years. The Court held that the office sign suggested only a temporary absence, not permanent closure, and the officer was not required to explore alternative service methods like contacting the company’s lawyer. Importantly, internal knowledge within the ATO was not attributed to the officer personally serving the demand.
Consequently, the Court upheld the winding-up order, affirming that the statutory demand had been validly served despite the Company’s claims of lack of fair notice. Companies must ensure their registered office details and signage are accurate and up to date, as statutory demands can still be validly served even if the office is unstaffed or unattended.
The Critical 21-Day Response Period: Kong & Kong Property Investment Pty Limited [2025] NSWSC 290
In Kong & Kong Property Investment Pty Ltd, the key legal issue was whether the company could oppose a winding-up application by raising a genuine dispute about the debt after failing to respond to a statutory demand within the 21-day period. Under section 459S of the Corporations Act, a company must obtain the court’s leave to rely on such a dispute at the winding-up stage, and the court can only grant leave if the dispute is material to proving the company’s solvency and there is a good reason for missing the deadline.
The company did not provide a sufficient explanation for missing the deadline to apply to set aside the statutory demand. Although the company claimed there was a misunderstanding, the director had received several communications explaining the debt and had legal counsel for other matters at the time. Even if there was a genuine dispute about the debt, the company failed to demonstrate that this dispute was relevant to proving its solvency.
Missed the Deadline? There May Still Be Hope: Deputy Commissioner of Taxation v Jackson Bell Pty Ltd [2023] FCA 916
If you missed responding to a statutory demand and your company has been wound up, there may still be hope to terminate the liquidation and regain control, as demonstrated in Deputy Commissioner of Taxation v Jackson Bell Pty Ltd [2023] FCA 916.
When considering whether a company ought to be wound up, consideration will be given to proof of solvency, arrangements to pay debts, ongoing profitable trading, creditor support, and whether there was any misconduct. The director’s personal funds and undertakings were also key. This shows companies can regain control by demonstrating solvency and cooperation, applying under section 482 of the Act to end liquidation.
Although there was success in this case, it proved to be a very expensive and time-consuming process for the company. By missing a statutory demand, a company risks triggering a winding-up proceeding that can be difficult and costly to reverse. This highlights the importance of responding promptly to statutory demands to avoid severe consequences and protect the company’s future.
Setting Aside a Statutory Demand: What Constitutes a ‘Genuine Dispute’? – One GC MQ Park Pty Ltd [2024] NSWSC 820
In One GC MQ Park Pty Ltd [2024], the Court looked at whether a company had a “genuine dispute” to challenge a statutory demand for a debt. To meet this test, the dispute just needs to be honest and arguable. The Court doesn’t decide who’s right about the debt at this stage, only if there’s a reasonable question to be answered later.
When the debt comes from a contract, courts usually avoid deciding the meaning of that contract during this early stage, to prevent conflicting rulings. Instead, they allow genuine questions about contract interpretation to be fully dealt with at trial. However, if the contract’s meaning is absolutely clear and the company’s argument is plainly wrong, the Court will reject the dispute and refuse to set aside the demand. A company can only avoid a statutory demand if there’s a real and arguable issue, but the Court won’t delay payment over arguments that are obviously wrong.
Key takeaways
Statutory demands are a powerful but precise tool in insolvency. These recent cases show both creditors and companies must pay close attention to the technical and procedural details to ensure demands are validly served and properly responded to. Ultimately, timely action and expert guidance are essential to navigate the statutory demand process effectively and avoid severe consequences.
Disclaimer
This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.