A statutory demand can put significant pressure on a business, particularly when the debt is disputed or the company is already experiencing financial difficulty. Understanding the response process, the importance of supporting evidence and the strict court deadlines can help directors make more informed decisions.
Receiving a statutory demand can be unsettling for any business owner. It may arrive when cash flow is already tight, when a customer has failed to pay, or when there is a disagreement about the amount being claimed.
The first instinct might be to contact the creditor and try to work things out. While communication can be helpful, it is important to understand that a statutory demand is a formal legal document with strict deadlines.
Under Australian law, a company generally has 21 days after service of a statutory demand to comply with it or apply to the court to have it set aside. The deadline is critical. Simply negotiating with the creditor or believing the debt is incorrect does not automatically stop the clock.
So, what if the company genuinely disputes the debt?
A company may be able to apply to set aside a demand where there is a genuine dispute about the debt, an offsetting claim, or certain defects in the demand that could cause substantial injustice. However, challenging a demand is not simply a matter of saying that the amount is wrong.
The company needs to properly identify the basis for its application and support its position with relevant evidence.
This is where an affidavit becomes important. An affidavit is a formal written statement of facts that supports the application. It should clearly explain the circumstances of the dispute and include relevant supporting material where appropriate.
A common problem is relying on broad statements without enough detail. For example, saying that a creditor’s invoice is disputed may not adequately explain why. Contracts, invoices, correspondence, payment records and other relevant documents may help establish the factual background.
The application also needs to meet the applicable filing and service requirements within the statutory period. Missing a procedural step can have serious consequences, and courts strictly apply these requirements.
If a company does not comply with a statutory demand, it may be presumed insolvent. A creditor may then seek a winding-up order, potentially placing the company at risk of liquidation.
That is why early action matters.
Directors should carefully review the demand, identify the date it was served, understand the nature of the debt and seek appropriate professional advice as soon as possible. The right response will depend on the circumstances, and not every demand can or should be challenged.
At Tax Negotiators, we help businesses understand their ATO debt and financial circumstances, and explore practical options when creditor pressure escalates.
If your business has received a statutory demand, do not assume that time is on your side. Understanding the details early can help you assess the next steps before the deadline passes.
