Crafting a CSD - Creditor’s Statutory Demand Letter (Series: Debt Recovery)
Welcome to part four of Titance Legal's Debt Recovery Series. Today, we're putting the spotlight on one of the most potent tools in a creditor's arsenal - the statutory demand letter. It might not be the conventional route for chasing unpaid invoices, but its effectiveness often lies in its threat of commencing winding-up proceedings. Let's dive in to understand what a statutory demand is and how to write one.
Statutory Demand 101: What Exactly is It?
At its core, a statutory demand is a formal written request from a creditor to a debtor company. It demands the payment of a debt within 21 days as per the Corporations Act 2001. If the debtor company fails to pay, agree to a suitable plan, or apply to have the debt set aside during this period, they are presumed insolvent. Then, the creditor can start winding-up proceedings through the Federal Court of Australia or any State Supreme Court.
When is a Debt 'Demand-able'?
A statutory demand comes into play when the debt is more than $2,000 and due for payment. It's not for prospective, contingent, or unliquidated debts. If a company owes you multiple debts, you can issue a single statutory demand that states the total amount owed and the origin of these debts.
The Blueprint for a Statutory Demand
The form a statutory demand takes is dictated by the Corporations Act. It has to be in writing and must bear your signature or a signature on your behalf. It should clearly state the debtor's company name and registered office, and it should lay out the total debt owed and where it can be paid, typically your office or solicitor's office. It's vital to support your demand with either a court judgment or an affidavit; without one, a court can easily dismiss your statutory demand.
Delivering Your Statutory Demand: The How-To
A statutory demand can be served to a debtor company anywhere within Australia. For interstate service, the Service and Execution of Process Act provides valuable guidance. You can either post it to the debtor company's registered address or personally deliver it to the company director if their address is in Australia.
Potential Risks of a Statutory Demand
Be aware that a statutory demand can potentially rebound if the debtor company successfully applies to set it aside, resulting in substantial legal costs on your part. The court can set aside a statutory demand if there's a genuine dispute about the debt or an offsetting claim against the creditor. Moreover, a solvent company can oppose winding-up proceedings, which is your only enforcement option if you've sent a statutory demand.
What Happens When a Debtor Receives a Statutory Demand?
If the debtor company does not respond to your statutory demand within three months, you have the right to initiate winding-up proceedings. Conversely, the debtor company may try to set aside your statutory demand within 21 days of service by lodging an application and supporting affidavit.
Wrapping Up
As a creditor, a statutory demand letter can be a potent tool in your debt recovery kit. However, you must tread carefully due to the associated risks and legal obligations. Before sending a statutory demand, ensure you understand how to draft one correctly, what to include, and the process of serving it.
Need help navigating this process? Our experienced debt recovery lawyers at Titance Legal are ready to assist. Reach out to us today for unlimited access to legal expertise through our Titance Legal membership. We'll answer your questions, help draft your documents, and make your debt recovery journey as straightforward as possible.
