5 Times you Shouldn’t Issue a Statutory Demand

By Chris Hargreaves

You probably know by now that Statutory Demands are pretty awesome, right?

I mean, of all the recovery options you have available to you the statutory demand offers massive pressure on the other side, with limited cost.

It seems like a no-brainer, doesn’t it?

Wrong.

Issuing a statutory demand in the wrong circumstances is not only a waste of time, it can open a whole can of trouble.

Nobody likes trouble, let alone a whole can of it, so let’s take a look at 5 times that you’ll be tempted to issue a statutory demand – but probably shouldn’t.

A Quick Recap on Statutory Demands

  1. You need to be owed more than $2k
  2. You issue a notice to a company under the Corporations Act 2001
  3. Within 21 days, the company has to take certain steps or they are “deemed insolvent”
  4. Being “deemed insolvent” is enough to support a winding up application, which most companies don’t want
  5. If a winding up application is granted the Company is stuffed.

It’s a powerful tool.

But it isn’t without risk.

#1 – When you Think You’re Owed Money, but your Client Disagrees

While there is every chance you’re right and they’re wrong, the statutory demand process isn’t designed to solve this kind of disagreement.

If you’ve put in a payment claim but your client disagrees with you and has a dispute – it’s probably not the best bet to issue a statutory demands, even if an adjudicator under the BCIPA has determined that amount is owing.

A statutory demand is for a clean, uncontested debt that simply hasn’t been paid.

It’s not a place to ventilate a dispute.

#2 – If your Client is a Massive Company with Tonnes of Money

It might sound fun to issue a statutory demand against a listed company, or a hugely profitable one – but unless you genuinely think that they can’t pay your debt, then the stat demand process isn’t the place to be playing.

A company that’s simply choosing not to pay you is very different from a company that can’t pay you.

The last is vulnerable to a statutory demand.

The first isn’t.

See also #5 below – are you really going to apply to wind up Coca Cola?

#3 – Where There’s a Huge Defects Claim

It doesn’t really matter if you think you’re right – the statutory demand process doesn’t help you if your client has a big fat claim for defects or delays.

Why? Because if there’s a serious and genuine dispute, the place to go is to adjudication (short term solution) or recovery proceedings (long term resolution).

Statutory demands are only for clean, uncontested debts where there isn’t a sizable off-setting claim against you by the principal.

#4 – If You’re Going to Back Down Straight Away

While it’s fairly simple to issue a Statutory Demand, it’s also fairly simple to create a big flap and demand that somebody set it aside.

If you’re not:

  1. confident in the existence and amount of the debt;
  2. confident that there’s no big off-setting claim;
  3. prepared to deal with the inevitable contest to the legitimacy of your demand,

then it’s best to stay out of the arena.

Of course things come up that might surprise you, and that’s fair. But if, given what you know, you’re not either confident in your position or prepared to have a fight, then issuing a statutory demand probably isn’t for you. It would just be a waste of time.

#5 – If Commercial Considerations are Paramount

The truth is this: issuing a Statutory Demand to someone isn’t very nice.

They won’t like it, and it’s going to do damage to your commercial relationship.

This isn’t just a matter of getting paid – this is a matter of your long term survival.

Sending a statutory demand for payment of debt is quite possibly going to end your future prospects with your client.

So you need to assess what matters more: the immediate, or the future.

And that’s a tough call, but it’s a necessary one.

So What’s the Decision?

On any given day you’re going to need to decide what debts to collect, and how to collect them.

Just because you decide not to issue a statutory demand doesn’t mean you have no options – it just means you’ve clarified that one option isn’t a good one.

There are plenty more to consider.

Need some help deciding? Get in touch and we’ll help you out.