Anyone who’s in business knows you need to pay your debts, however, few people know how serious things can get if you don’t pay on time.
Under Australia’s Corporations Act a company that is owed more than $2,000 can serve something called a statutory demand on another business that owes it money.
The statutory demand is essentially just a bill – except not paying it has very serious consequences.
Most importantly if the statutory demand notice isn’t paid, within 21 days, the company, or person, that served it can apply to the courts to have your business legally wound up – or closed.
“Serving a statutory notice of demand can be a powerful business tool for companies trying to call in debts,” commercial litigation lawyer at Strategic Lawyers, Steve Hodgson said.
“On the other hand, if you’re served with a notice of statutory demand, it’s important to seek legal advice as soon as possible as the consequences of failing to pay by the necessary deadline can be dire.
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“These include where the company claiming it is owed money has in fact not lived up to its side of a deal – that would mean you can make an offsetting claim.
“And if you’re withholding the payment they’re demanding because a separate transaction has gone awry – then the courts may find in your favour.
“However, it always going to be better to seek legal advice as soon as you get a notice of statutory demand, rather than risking your company getting wound up.”
The law is very specific on the ways notices of statutory demand must be served because it would be unreasonable if companies were shut down over debts they didn’t know they owed.
And while in some cases sticking the document to the front door of a business has been held to be sufficient evidence it has been served, in other cases, the law is much more complicated.
For example, if the notice is sent by fax or email then the company that sent it needs to show the fax was received or that the email was opened – essentially that the company they were trying to communicate with was aware they’d been sent the notice.
The method most law firms use will be to send the notice via registered post and in most cases, that will be enough for the courts to accept that it was sent.
However, in some rare cases the postal rule has been overturned.
“For this reason it is always worth employing lawyers to ensure the notice is served correctly and that the necessary evidence is collected,” Mr Hodgson said.