What happens after non-compliance?
In short
If the company neither pays nor sets aside the demand within 21 days, it is presumed to be insolvent. The creditor may then apply to the court to wind the company up. The presumption is a powerful lever, but winding-up is a serious step that should be considered carefully.
Non-compliance with a statutory demand triggers the consequence that gives the process its power: a presumption of insolvency.
The presumption of insolvency
Once the 21 days pass without payment, arrangement, or a set-aside application, the company is presumed insolvent. That presumption can be relied on in a winding-up application.
Applying to wind up the company
The creditor can apply to court to wind the company up on the ground of insolvency. This is a significant step with its own procedure, costs, and timeframes, and there are strict time limits for making the application.
Do not use a statutory demand for a genuinely disputed debt. If the debtor disputes the debt on genuine grounds, or has an offsetting claim, a statutory demand can be set aside and cost orders may follow. If in doubt, seek advice before proceeding.
References
- Corporations Act 2001 (Cth) — incl. s 459E (statutory demand)
- Corporations Regulations 2001 — prescribed form and statutory minimum
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