When a statutory demand should not be used
In short
Avoid a statutory demand where the debt is genuinely disputed, below the statutory minimum ($4,000), or where the debtor has an offsetting claim. Misusing the process can lead to the demand being set aside with cost orders. It is a debt-collection tool, not a way to resolve a genuine commercial dispute.
A statutory demand is a blunt and powerful instrument. Used in the wrong situation, it can backfire — the demand may be set aside and you may be ordered to pay the debtor's costs.
Situations to avoid
- The debt is genuinely disputed on substantial grounds.
- The debtor has a genuine offsetting claim.
- The amount is at or below the statutory minimum ($4,000).
- You are really trying to resolve a commercial dispute, not collect a clear debt.
Why it matters
Courts treat misuse of the statutory demand process seriously. If the demand is set aside because it should never have been issued, an adverse costs order can follow.
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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