What do you do when a company owes you money? Or a creditor issues a statutory demand on your company?

This article discusses what a statutory demand is and the risks and benefits of issuing a statutory demand to recover your money.

Before commencing winding up proceedings against a debtor company, it is very common for a creditor to serve a creditor's statutory demand for payment of a debt ("statutory demand"). After spending time and effort preparing a statutory demand, it is crucial that the statutory demand is served properly on the debtor company. If it is not served properly, the statutory demand may be set aside and cost you money.

With continuing market volatility a number of companies remain under financial pressure. Businesses or individuals receiving payments from companies that might be financially distressed should be aware of the ability of a liquidator to apply to a court under the Corporations Act 2001 (Cth) (Corporations Act) to recover payments made to creditors in the six months prior to the appointment of a liquidator/administrator on the grounds the payment constituted an “unfair preference”.

Quick Recap on the Relevant Provisions

Key Points:

These three cases illustrate that strict compliance with legislative requirements continues to be imperative when serving statutory demands.

Despite what appears to be a fairly straightforward legislative regime, creditors' statutory demands appear to generate an entirely disproportionate volume of litigation in the courts. The drastic consequences of failing to comply with a creditor's statutory demand warrant very strict compliance by creditors with the technical requirements of the regime.

The Bankruptcy Act 1966 (Cth) (the Act) provides a regime by which a debtor can compromise with his/her creditors outside formal bankruptcy. The provisions are found in Part X (Personal Insolvency Agreements) and Part IX (Debt Agreements) of the Act.

DEBT AGREEMENTS

Summary

Insolvency practitioners pursuing unfair preference claims should give consideration to a recent Queensland District Court judgment which has endorsed the application of section 553C of the Corporations Act 2001 (Cth) (Act) - which enables an insolvent company and a creditor to set-off their mutual debts against each other - to unfair preference claims.

THE PERILS OF AMBIGUITY IN BANKRUPTCY NOTICES

The Bankruptcy Act ('the Act') is prescriptive as to the form and content of bankruptcy notices. Courts have often observed that close observance of the rules is necessary in light of the serious consequences faced by debtors upon bankruptcy and failure to do so may result in the notices being rendered invalid.

In brief - Courts identify three circumstances for ordering priority repayments

Debts claimed in statutory demands must be due and payable to the creditor named in the statutory demand.

When disputing statutory demands it is common for debtor companies to argue an offsetting claim, so as to reduce or extinguish the amount claimed in the statutory demand.

For there to be a valid offsetting claim there must be ‘mutuality’, meaning that the legal capacities in which both the offsetting claim and the statutory demand debt are each claimed and owed must align.

Need to know

In a first for the US and Australian markets, the Buccaneer Energy group of companies successfully had bankruptcy plans approved by the US Bankruptcy Court for both US and Australian incorporated debtor companies.