One of the ever-present risks for any creditor when recovering unpaid debts is the possibility that your debtor may lack the means to repay.

Should litigation ensue, this fact might only emerge after expending further monies on litigation fees and court costs.  In that case, not only might you be left without payment of the original debt, but you will have probably spent more good money chasing after bad.

Where the debtor is a company, one potential way of reducing this risk is to employ a legal procedure known as a statutory demand.  A statutory demand may be served on a company in respect of an unpaid debt or series of debts.  The company then has 21 days in which to either pay the debt demanded or apply to a Court to set the statutory demand aside.

If the company fails to pay, and similarly does not apply to set aside the demand at the expiry of the 21-day period, this creates a presumption of the company’s insolvency.  This presumption can then be used by a creditor to apply to wind the company up, appoint a liquidator to sell any assets and distribute the proceeds among the company’s creditors.

In some instances, a statutory demand can eliminate the potentially significant costs in commencing proceedings against a company and obtaining a judgment.  However, as recent decisions of the Supreme Court of Western Australia have illustrated, significant care must be taken when employing the statutory demand procedure.   This is to ensure that they are properly used, in accordance with the applicable laws, and that they meet the necessary formal requirements.

If you would like information about issuing a statutory demand, or if your company has been served with one, contact Robert Ross director of Composite Law for advice.