Following on from our first article titled “What you need to know about Statutory Demands”, this article explains the circumstances in which a statutory demand can be set aside.
Can a statutory demand be challenged?
Put simply, a statutory demand is a demand for the payment of a debt, or debts, totalling greater than $2,000.00 that is due and payable by a debtor company to a creditor (for more, see Part One of this Article).
Upon being served with a statutory demand, your company has 21 days to either pay the demand in full, or to challenge the validity of the statutory demand by filing an application (and supporting affidavit) in court, in accordance with Section 459G of the Corporations Act 2001 (Cth), for an order that it be set aside. Broadly speaking, the 21 day period to file and serve the application and supporting affidavit is unable to be extended.
Under what circumstances can a statutory demand be challenged?
The Corporations Act 2001 (Cth) provides that a company may apply to set aside a statutory demand if:
- there is a genuine dispute between your company and the creditor about the existence or amount of the debt;
- your company has a claim which offsets the debt;
- there is a defect in the form of the demand which will cause substantial injustice unless the statutory demand is set aside; or
- there is some other reason which justifies it being set aside.
You should seek legal advice immediately in relation to challenging the statutory demand.
What happens when a statutory demand is set aside?
If your company files an application in court in accordance with Section 459G of the Corporations Act 2001 (Cth) and is successful in obtaining a court order to have the demand set aside:
- the statutory demand will have no legal effect; and
- in most cases, the court will order that the relevant creditor pay your company’s legal costs of the application.
If your company wishes to challenge a statutory demand:
- you should immediately take steps to obtain legal advice; and
- unless the demand is withdrawn by the creditor, you should ensure that an application to set aside the demand is filed and served on the creditor within 21 days of the date on which the demand was served on the company.