Statutory demand vs letter of demand
In short
A letter of demand is an informal request for payment with no statutory consequences. A statutory demand is a formal instrument under the Corporations Act that, if ignored, creates a presumption of insolvency. Use a letter of demand first for disputed or smaller debts; use a statutory demand for clear, undisputed company debts.
Both are called "demands", but they do very different things. Choosing the wrong one can waste time or expose you to cost orders.
Letter of demand
An informal written request for payment. It carries no statutory consequence if ignored, but it is flexible, inexpensive, and appropriate for smaller or disputed debts, or as a first step.
Statutory demand
A formal instrument under the Corporations Act 2001. If the company does not respond, it is presumed insolvent — a powerful lever, but one reserved for clear, undisputed company debts over the statutory minimum.
Which should you use?
As a general guide: start with a letter of demand where the debt is smaller or contested; move to a statutory demand where the debt is clear, undisputed, and owed by a company.
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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