A refresher for accountants
With the ATO ramping up small business debt collections at the moment, it is quite likely that your clients who are in arrears and not being proactive about payment plans may receive a Statutory Demand for payment of overdue tax amounts. A Statutory Demand is a serious matter and is often a precursor to a winding up application through the Courts.
So with that said, I thought it would be a good idea to re-visit how Statutory Demands work and to address, with specific reference to accountants (and lawyers), the implications of acting as a company’s registered office.
What is a Statutory Demand?
A Statutory Demand is a formal demand for payment of a debt made by a creditor to a debtor. It is a legal document that must be served on the debtor in accordance with the Corporations Act 2001 (Cth).
Who can serve a Statutory Demand?
Any creditor can serve a Statutory Demand, as long as the debt is at least $4,000. The creditor does not need to be a lawyer.
What does a Statutory Demand contain?
A Statutory Demand must contain the following information:
- The name and address of the creditor
- The name and address of the debtor
- The amount of the debt
- The date on which the debt is due
- A demand for payment of the debt
- A warning that the debtor may be deemed insolvent if the debt is not paid within 21 days
What happens if the debtor does not comply with a Statutory Demand?
If the debtor does not comply with a statutory demand within 21 days, they are deemed to have committed an act of insolvency. This means that the creditor can apply to the Court to wind up the debtor’s company.
How can a debtor challenge a Statutory Demand?
A debtor can challenge a Statutory Demand on the following grounds:
- The debt does not exist
- The debt is disputed
- The debt is not yet due
- The statutory demand was not served properly
What are the risks of issuing a Statutory Demand?
If a creditor serves a Statutory Demand on a debtor that is invalid, the creditor may be liable for damages. Additionally, if the creditor serves a Statutory Demand on a debtor that is in financial difficulty, the debtor may be forced to cease trading, which could have negative consequences for the creditor.
What to do if a Statutory Demand comes to you as the registered office?
It is commonplace for the taxation accounting firm to act as the registered office for a company who is a client.
Accordingly, if a Statutory Demand arrives at your office, there are a number of important steps you should take:
- Stamp or note the date and time that the Statutory Demand was received
- Scan a copy into you document management system
- Send a copy to the directors of the company as soon as possible after receipt and follow up the email with a phone call
- Make a note to confirm that the directors have acknowledged receipt of the Statutory Demand
Statutory demands are a powerful tool that can be used by creditors to collect debts. However, it is important to be aware of the risks involved before serving a Statutory Demand. Accountants can play an important role in helping creditors to understand the law and to make informed decisions about whether or not to serve a Statutory Demand.
Here are some additional things for accountants to keep in mind about statutory demands:
- The 21-day period for complying with a Statutory Demand starts from the date the demand is served, not the date it is received
- If a debtor is served with a Statutory Demand, they should seek legal advice immediately
- There are a number of grounds on which a debtor can challenge a Statutory Demand
- If a debtor does not comply with a Statutory Demand, the creditor can apply to the Court to wind up the debtor’s company
I hope this article has been informative. Please let me know if you have any other questions.
About the author
Greg Quin is a Partner at HLB Mann Judd Insolvency WA and has been with the team for 14 years. Greg oversees the daily operations of the many insolvency appointments managed by the HLB Insolvency team and looks after the operations of the practice.
If you have any queries about insolvency matters, please feel free to contact Greg on 08 9215 7900, 0402 943 091 or via email to email@example.com.