Recently we were engaged by a client to issue a Statutory Demand for unpaid invoices dating back to 2018. A Statutory Demand is used by a creditor where a debt is owed to them by a company and the debt is not disputed.
A Statutory Demand should be taken very seriously if received as you have 10 working days to dispute the debt or 15 working days to pay the debt. If you do nothing, then a creditor can apply to the Court for an order to liquidate your Company.
Most creditors do not wish to follow through and liquidate your Company, they simply wish to be paid the debt they are owed. By the time a creditor gets to the Statutory Demand it is usually because they have tried all other options and have not been successful.
Before issuing a Statutory Demand, you will need to consider the following:
- Whether the Company has ever disputed the debt or the amount owing; and
- Whether the debt is greater than $1,000.
If there is substantial dispute over the debt, then serving a Statutory Demand is not the appropriate course of action and considered to be an abuse of process.
The High Court have recommended that Statutory Demands are issued by Solicitors to ensure that the correct procedure is followed.
The issue that arose in the matter we were engaged in related to service of the Statutory Demand. The Statutory Demand was emailed to the registered office of the debtor Company and a paper copy was not served in person.
Following the issue of the Statutory Demand the Director of the debtor Company engaged in correspondence via email disputing that the Statutory Demand had been correctly served on the Company. The Companies Act indicates that the Statutory Demand be served in person.
However, in Upright Scaffolding Ltd v Pinnies Painters & Plasterers Limited in 2019 the Court had to determine whether service of a Statutory Demand on a Company by way of email was acceptable. In this case the Judge made the following points:
- The Judge decided that the starting point is that service can be completed by bringing the Statutory Demand to the attention of the Company.
- There must be certainty that the document has come to the attention of the Company.
- Someone wishing to serve a Statutory Demand by email must be able to establish that the document came to the attention of the Company (e.g. a reply email from the Director).
- The email address will need to be currently in use by the Company and not be an address used by the Company for other purposes (e.g. an address on a website that is used to request a quote or make an enquiry) and not the email of a junior staff member. The email must be sent in a way that makes clear that what is being served is a Statutory Demand.
- An email address that has been used by a Director for correspondence in respect of the debt subject to the Statutory Demand is sufficient if what is being served is clear.
While it is still a little unclear from the judgment it appears that once served by email and the Director responds to your email acknowledging receipt then you will have complied with the law.
If you want to be able to recover your costs in collecting a debt, or to charge interest on the outstanding debt, then it is vital that you have current terms of trade and the customer has agreed to be bound by those terms of trade.
We would be very happy to talk to you if you have any questions regarding any of the above (and offer a free 30 minute consultation).