Merry Christmas: There’s a Creditor’s Statutory Demand under your Christmas Tree!
It’s that time of year as businesses prepare to close for a week or two during the Christmas/New Year period. That shut down period is dangerous for businesses because of a time-critical mechanism within the Corporations Act 2001 (Cth) called a creditor’s statutory demand (CSD). It is important therefore:
- to make sure that your registered office details with ASIC are correct;
- make sure that your registered office has a mechanism for receiving mail and forwarding it one of the directors urgently if your business closes down over the Christmas/New Year period.
What is a CSD?
A CSD is a formal document which, if served correctly and is in the proper form, requires the company being served to either:
- pay the amount demanded (which must be over $2,000) within 21 calendar days otherwise the company will be deemed insolvent and could eventually be wound up and a liquidator appointed; or
- on or before 21 calendar days of the demand being served, file and serve proceedings at the Supreme Court (or the Federal Court) to apply to have the demand set aside if the CSD has not been withdrawn in writing by the creditor.
The debt the subject of the CSD must be undisputed. For example, it could be a court judgment debt, an amount agreed to in a deed or, less frequently and more risky, an invoice that has been acknowledged as owing. The CSD mechanism cannot be used as a means of circumventing proper debt collection process – it will otherwise be held to be an abuse of process.
It is important to note, that if the debtor company has a counter-claim against you, that counter-claim can be set off against the CSD and could be used to set aside the CSD. It follows, that a decision to serve a CSD should not be taken lightly.
What do I do if I have been served with a statutory demand?
Act immediately and do not delay getting advice from a lawyer. The 21 day compliance period does not stop for Christmas holidays. Do not wait until the last couple of days before the 21 days expires as a set aside application requires a detailed affidavit and it must be served within that 21 day period.
Court registries are open on non-public holidays between Christmas and New Year even if companies have closed. This means that if the 21 day expiry date falls within a company’s “shut down period”, there is no excuse for not being able to file and serve any set aside application.
Surry Partners Lawyers have acted on many occasions on both sides of a CSD and can assist you through the process.
This paper is a summary providing general information and is not specific legal advice. Each scenario is different and will require consideration of specific circumstances before legal advice may be provided.
For more details, please contact:
Clement Lo, Associate
(02) 9318 6420
James Hamilton, Lawyer
(02) 9318 6423
Peter English, Director
(02) 9318 6411