Statutory demands can be a complicated and stressful process for businesses. In Australia, a statutory demand is a formal request for the payment of a debt owed by a company.
It is a serious matter that can have significant legal and financial consequences if not handled correctly. It can also lead to the statutory demands being overturned in the Supreme Court.
If successful, this can lead to costs orders made against you which can be extremely costly to pay legal fees for them to overturn it and yours, in most instances that will dwarf the claim itself.
In this article, we will explore the common mistakes that businesses make when serving statutory demands in Australia and discuss how you can avoid these errors to protect your business.
- Failing to Respond to a Statutory Demand
One of the most critical mistakes businesses make is failing to respond to a statutory demand within the 21-day period specified by the law.
The consequences of not responding can be severe. If a company does not respond or reach a settlement with the creditor within the stipulated time, it may lead to the presumption that the company is insolvent, which can ultimately result in winding up proceedings.
To avoid this mistake, it is crucial to treat statutory demands seriously and to act promptly.
As a business owner, make sure you carefully review the demand, seek legal advice if needed, and respond within the given timeframe. By doing so, you can protect your business from potential winding up proceedings and maintain a favourable position.
- Ignoring the Demand
Ignoring a statutory demand is another common error made by businesses. Some may wrongly assume that by disregarding the demand, it will go away. However, this approach can lead to serious consequences, including legal action and the freezing of the company’s assets.
It is important to understand that a statutory demand is a legally-binding document that cannot be ignored.
Instead, take the demand seriously and take immediate action. Ignoring it will only worsen the situation for your business, potentially leading to further financial and legal troubles.
If the statutory demand is not responded to or satisfied in full (or applied to be set aside) it can lead to a presumption of insolvency.
- Insufficient Documentation or Evidence
Another common mistake businesses make when serving a statutory demand is failing to provide sufficient documentation or evidence to support their claim.
When serving a demand, it is essential to include all relevant information, invoices, contracts, and any other supporting documents that prove the existence and validity of the debt.
Insufficient documentation can lead to the demand being successfully set aside by the court, delaying the resolution and potentially resulting in additional legal costs for your business.
To avoid this mistake, ensure that you gather and include all necessary documentation when serving a statutory demand.
If the statutory demand is incorrect in any way, it can be liable to be set aside leading to great cost consequences. That is why it is vital to make sure that it has all the necessary information and that it is correct in every way.
There must not be any dispute in relation to the debt, otherwise it may be liable to be set aside.
- Lack of Open Communication and Negotiation
Businesses sometimes make the mistake of adopting a confrontational approach when responding to a statutory demand. Instead of engaging in open communication and negotiation, they may choose to contest the demand aggressively or refuse to engage in any form of dialogue.
Taking an adversarial stance can lead to escalations and a more challenging resolution process.
It’s important to remember that statutory demands present an opportunity to negotiate and reach a settlement with the creditor. By fostering open communication and pursuing amicable resolutions, you can potentially avoid escalating legal proceedings and preserve business relationships.
Engage in open dialogue with the creditor, seek legal advice on negotiation tactics, and explore options for mutually beneficial solutions.
By adopting a cooperative approach, you may be able to reach a settlement that benefits both parties involved.
- Not Seeking Legal Advice
Serving and responding to a statutory demand requires a thorough understanding of the legal requirements and intricacies involved.
Many businesses make the mistake of not seeking professional legal advice, assuming they can handle the process on their own. This oversight can result in critical mistakes and missed opportunities.
Engaging a qualified lawyer with experience in handling statutory demands is crucial. A legal professional can guide you through the process, ensure that all legal requirements are met, and help you make informed decisions regarding negotiations, settlements, or disputing the demand.
Their expertise can greatly minimise the risk and protect your business’s interests.
It’s also important to note that the Section 459E of the Corporations Act 2001 outlines the specific requirements for serving and responding to statutory demands.
Familiarise yourself with the legislation and seek guidance from legal experts to navigate through the process smoothly.
Key Takeaways
Serving statutory demands can be a daunting process for businesses, but being aware of the common mistakes made by others can help you avoid unnecessary pitfalls.
By promptly responding to demands, providing accurate documentation, fostering open communication with the creditor and seeking professional legal advice, you can safeguard your business from the potential legal and financial repercussions.
Remember, careful attention to statutory demands is vital for maintaining a healthy and thriving business.
Author details: Ian Aldridge has almost 20 years experience in providing legal advice to SMEs both in Australia and in the UK. He founded Progressive Legal in 2014 with a NewLaw view of providing better services to growing Australian businesses. He is passionate about protecting them and their owners and has a wealth of experience.