Changes to statu­to­ry demands from 1 Jan­u­ary 2021

The tem­po­rary insol­ven­cy pro­tec­tions relat­ing to statu­to­ry demands, which apply to all com­pa­nies, are due to end on 31 Decem­ber 2020. 

In the nor­mal course, under sec­tion 459E of the Cor­po­ra­tions Act, a cred­i­tor can issue a statu­to­ry demand against a com­pa­ny demand­ing pay­ment of a debt of at least $2,000 (the Statu­to­ry Min­i­mum) that is cur­rent­ly due and payable. The com­pa­ny then has 21 days after being served with the statu­to­ry demand to pay the demand­ed amount, reach an agree­ment with the cred­i­tor about the debt to the creditor’s sat­is­fac­tion, or to apply to a rel­e­vant court to have the statu­to­ry demand set aside.

If a com­pa­ny fails to respond to the statu­to­ry demand with­in 21 days, it will be pre­sumed to be insol­vent and the cred­i­tor can make an appli­ca­tion to a court for the com­pa­ny to be wound up in insol­ven­cy and a liq­uida­tor to be appoint­ed to the company.

In order to reduce the instances of com­pa­nies being liq­ui­dat­ed, the Coro­n­avirus Eco­nom­ic Response Pack­age Omnibus Act 2020 made the fol­low­ing changes to the statu­to­ry demand process:

1. Increase the Statu­to­ry Min­i­mum from $2,000 to $20,000 – mean­ing that a cred­i­tor must have a much larg­er debt owing to it by the com­pa­ny before it can issue a statu­to­ry demand
2. Extend the time for a com­pa­ny to respond to a statu­to­ry demand from 21 days to six months — mean­ing that the com­pa­ny will have a longer peri­od of time to deal with the statu­to­ry demand, reduc­ing the pres­sure on the com­pa­ny for a quick response.

As not­ed above, on 31 Decem­ber 2020 the tem­po­rary relief mea­sures for statu­to­ry demands are set to end. This means if a com­pa­ny is served with a statu­to­ry demand for $2,000 or more after that time, i.e. on 1 Jan­u­ary 2021 onwards, it will only 21 days to respond to the statu­to­ry demand, i.e. by pay­ing the debt or apply­ing to the court to set aside the statu­to­ry demand on the basis that, for exam­ple, the com­pa­ny has a gen­uine dis­pute as to the debt.

Accord­ing­ly, if you need to serve a statu­to­ry demand, or you receive one, the time to com­ply will from 1 Jan­u­ary 2021 be much short­er than it has recent­ly been. If you need to serve a demand, or you have been served with one, please seek advice on the new arrangements.