Debt Collection Toolbox: Crack Open a Company With a Creditor’s Statutory Demand
A Creditor’s Statutory Demand (or commonly referred to as a CSD) is a technical letter of demand. It is issued per section 459E of the Corporations Act 2001 (Cth) against corporate entities where the issuing creditor has good reason to believe that there is no dispute in relation to the debt owed.
A CSD can be either supported by a Judgment of a court or an Affidavit and the demand must meet the statutory minimum amount of $4,000.00.
How Does a Creditor’s Statutory Demand Work?
The CSD provides a notice period of 21 days in which the debtor company must act. There are strict rules about service and the calculation from the date on which the CSD is delivered. If no action is taken within those 21 days, a presumption of insolvency automatically arises.
This acts as a short cut and for a strict period of 3 months can be used by either the issuing creditor or any other creditor who becomes aware of an expired CSD.
What Happens Next?
A presumption of insolvency means a company is presumed to not be in a position to pay its debt as and when they fall due. This then supports a creditor making an application to the Court to wind the company up and appoint a liquidator.
A liquidator has extensive powers to enable him/her to realise (recover or sell) the company’s assets and to also ask tricky questions of the directors such as: Where did all the money go? Monies realised are then disbursed between all known unsecured creditors.
If a company owes you a debt equal to or greater than $4,000.00, use of a CSD may be suitable. It is not an everyday debt collection tool, but when used properly it can be highly effective.
Has your company been served with a Creditor’s Statutory Demand?
Find out what you need to urgently do by reading EL's Knowledge Centre article
If you need to discuss your company's debt recovery options, get started by making an appointment with EL's Principal Legal Advisor - Disputes, Kirsten Woolston: