Statutory Demand – what is this?

ddk-drowning_handStatutory Demand – what is this?

If you are a shareholder and/or director of any company, you should read the new article by Queen City Law Senior Associate John Jon, an expert in commercial and property law.

To read and download the complete article as a PDF click here.QCL-MEDIA-SHOOT_final-jon-210x300

To read more about John click here, to read more articles by John Jon click here.

If you are a shareholder and/or director of any company, you should be aware of statutory demand issues.

Pursuant to section 289 of the Companies Act 1993 (“Act”), any creditor may issue a statutory demand against a debtor company.  The creditor may issue statutory demand, which must comply with the requirements under the Act including:

– Be in respect of a debt that is due and is not less than the prescribed amount; and

– Be in writing; and

– Be served on the company; and

– Require the company to pay the debt, or enter into a compromise under the Act, or otherwise compound with the creditor, or give a charge over its property to secure payment of the debt, to the reasonable satisfaction of the creditor, within 15 working days of the date of service, or such longer period as the Court may order.

Also, this is available only to a creditor whose debt is equal to or more than the prescribed amount, which is currently prescribed as $1,000 (pursuant to reg 5  Companies Act 1993 Liquidation Regulations 1994).  It is important for a creditor to note that this statutory demand should be used to prove insolvency of a company rather than as a means to collect outstanding money.

In addition to the options set out in the Act, the debtor company (assuming that the creditors have complied with the service requirements under the Act) may apply to the Court for a statutory demand to be set aside.  The company must strictly comply with this timeframe of within 10 working days of the date of service of the statutory demand (time of the essence).  If not, the company is faced with the prospect of satisfying the Court that it is solvent if an application for its liquidation should be made within 30 working days.

For the purpose of setting aside the debtor company must prove that there is arguably a genuine and substantial dispute as to the existence of the debt.

oil-Bankrupt-300x252The Court may grant an application to set aside a statutory demand if it is satisfied as to the existence of:

– a substantial dispute, or

– a counter-claim, set-off, or whether a cross demand can be established, or

– if there is some other reason why the demand should be set aside.

While the Court’s discretion is quite wide, it is important that the debtor company satisfies the abovementioned principles and also the timeframe.

Once a company has been placed into liquidation, a liquidator will be appointed by the Court.  Once this has been done, the company will be in the hands of the liquidator, who must take all steps necessary to collect, protect, realise, and distribute the company assets to the creditors in accordance with the Act. Any surplus assets are to be distributed by the liquidator to the persons entitled to them in accordance with the company’s constitution or in accordance with the Act.


If you are considering issuing  a statutory demand or have been served with a statutory demand, it is important that you seek sound legal advice before taking any legal action.

We offer this service at our firm and you should definitely consider seeking our advice before any action is taken. Contact Us